Prime Minister Malcolm Turnbull says the states will have "no credibility" when they ask his Government for more money in the future after rejecting a proposal to levy the income tax themselves.

Key points: "Overwhelming" response from states against changing taxes

"Overwhelming" response from states against changing taxes PM says states will not be able to ask Government for more money if they are not prepared to raise it themselves

PM says states will not be able to ask Government for more money if they are not prepared to raise it themselves ACT chief minister says debacle has delayed reform of Federation

The idea was rejected at Friday's Council of Australian Governments (COAG) meeting, with the Prime Minister arguing the money could have been used to invest in schools and hospitals.

Mr Turnbull told Sky News the states were not prepared to take on responsibility for increasing taxes.

"If they're not prepared to make the case to their citizens, through their Parliament, for higher taxes, they cannot seriously or credibly ask us to raise taxes to give money for them to spend," he said.

Finance Minister Mathias Cormann said the idea had been taken off the table, so the states and territories would need to find an alternative plan.

"This was meant to be the beginning of a process at COAG last week," Mr Cormann said.

"[But] obviously the response from the states was overwhelming.

"Except for the Premier from Western Australia, no state actually was prepared to entertain this idea any further."

Tasmanian Premier Will Hodgman said Tasmania already managed its spending better than most other states.

"We're not calling for increases in taxes," Mr Hodgman said.

"We have a very strong position that keeping taxes down, keeping the cost of living and the cost of doing business down is the right thing for Tasmania — but we are also living within our means.

"We are a state that is getting our budget under control, heading back into surplus."

Failed attempt has delayed Federation reform

ACT Chief Minister Andrew Barr said the failed attempt to change income tax arrangements had set back the prospect of reform for the Federation.

He said a single phone call to each leader before the meeting was not the way to undertake a change as radical as Mr Turnbull was proposing.

"Unfortunately for those who are interested in serious reform of the Federation, I think this approach has probably set that back."

Former prime minister Tony Abbott had previously rejected the idea of the states levying their own income tax, claiming it would have led to "double taxation".

But he refused to comment on the issue during the launch of his annual "pollie pedal" charity ride at Parliament House.

"Look, there are all sorts of ideas that get put to people, and I'm not going to go into that today. There'll be time enough to discuss all of these issues," Mr Abbott said.

"Obviously the Parliament is coming back in a couple of weeks' time and I daresay these issues will be canvassed endlessly then."