More recently, the High Court has found that the Constitution does not allow States to levy business franchise fees (taxes on petroleum, liquor and tobacco) or levy certain taxes on Commonwealth owned places (for example, an office building or a military establishment). Although initially intended as temporary, this arrangement has persisted with the result that States have no direct access to income taxes.

Significantly, in 1942, to help the war effort, the States passed their income tax powers to the Commonwealth. Since Federation, a series of developments has restricted the taxation powers of the States. In particular, they cannot levy excises (taxes on goods), customs duties (taxes on imports and exports) or taxes on Commonwealth property. States are restricted by the Constitution in the type of taxes they can levy. Why a reform? States have limited taxing powers Consideration of these measures by Commonwealth, State and Territory Heads of Government, including at a Special Premiers’ Conference on 13 November 1998, resulted in the signing of an Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations on 9 April 1999.

Measures to achieve this objective were subsequently included in the Government’s 13 August 1998 ANTS package. The need for the reform of Commonwealth-State financial relations was recognised in the five principles of taxation reform announced by the Prime Minister in launching the Government’s tax reform exercise in August 1997. Reflecting their significantly stronger financial position, States will assume full responsibility for local government funding and for the operation of a First Home Owners Scheme. Under these arrangements, States will have access to a more robust tax base that can be expected to grow over time. The GST revenues accruing to the States will provide a robust source of revenue that will replace Commonwealth Financial Assistance Grants (FAGs) and Revenue Replacement Payments to the States, as well as the revenue from nine inefficient State taxes. As part of A New Tax System (ANTS) the Commonwealth will introduce a Goods and Services Tax (GST) on behalf of States and Territories (States).

What states are commonwealth states