Prime Minister Malcolm Turnbull’s plan for states to raise their own income tax came to a screeching halt on Friday after the states and territories could not agree to his proposal in the Council of Australian Governments meeting.

“The states will not be levying an income tax and the Commonwealth will not be increasing income tax,” Turnbull said, killing his latest tax policy, which lasted less than a week of public scrutiny.

Turnbull could not reach an agreement with the premiers and chief ministers of Australia’s states and territories for his radical proposal for states to raise their own income tax to fund their services in exchange for the Commonwealth cutting government grants and lowering its income tax rate. He said there was no appetite for the reform but said it was his job to “push the envelope” and to try and lead the reform.

The leaders did, however, agree to consider proposals to share personal income tax revenue with the states, and pursue initiatives for the states to provide real-time data on how government money is spent. Turnbull said the income tax sharing proposal would make it easier for states to access resources and would potentially fix the expensive-to-administer grants scheme.

The states did secure $2.9 billion in funding for hospital services from July 2017 to June 2020, with growth in Commonwealth funding capped at 6.5% each year. Looming large was the $80 billion Commonwealth funding commitment to schools and health made out to 2024-25 by the Gillard government, which was cut in the disastrous 2014 Abbott government budget. Turnbull and the state premiers argued that the agreement had never been funded. WA Premier Colin Barnett, for example:

“I was the only person here today who was here then, that time ago, and I remember that COAG meeting very, very clearly. It was somewhat chaotic. There were little private meetings in different rooms as the then Prime Minister and state premiers scurried from room to room and the $80 billion figure appeared. I didn’t at the time ever believe that was a realistic number or that that could be properly funded.”

Labor leaders, however, argued that it didn’t reverse the decisions of the 2014 budget. Victorian Premier Daniel Andrews:

“I’d just ask people to remain focused on the context here and whilst an agreement today is a positive, there’s no getting away from or getting around or politely explaining away the fact that many billions of dollars will not be flowing to hospitals in my state and hospitals right across the nation as a result of decisions made in the 2014 Budget. They are not reversed today, and that’s a really important point for us all to acknowledge, in a decent way but in a fundamentally honest way.”

Queensland Premier Annastacia Palaszczuk:

“There is still a huge gap. And that means it’s going to place a huge strain on our hospitals. It will mean more work for our doctors, our nurses, our administrators.”

After Turnbull indicated on Thursday that the Commonwealth government could pull funding from public schools and keep funding private schools, no agreement has been made on Commonwealth funding for schools, which is due to run out at the end of 2017. The Commonwealth has still not committed to the “full Gonski” funding for the remaining two years, Turnbull said:

“We are not wedded to that particular — the ‘full Gonski’, whatever that means. The full Gonski I went to school with in 1967.”

The state leaders again expressed concern that if there was a plan to continue to provide federal funding to private schools but not public schools it would be “detrimental to the nation,” in the words of Palaszczuk. ACT Chief Minister Andrew Barr said the issue was “a line in the sand” for the ACT.

The states turning on Turnbull so quickly raised questions on whether the prime minister had suffered a humiliating defeat, but Turnbull told Sky News on Sunday that the states — with the exception of WA — now can no longer ask for more money from the Commonwealth without being willing to take on the responsibility for raising taxes.

“The reality is … 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.”

Labor is now preparing to campaign on the issue, with Shorten saying over this weekend that Turnbull had commenced a “war” with the states on “double taxation”.

The COAG communique also states the leaders have agreed to more work on indigenous economic development, reducing violence against women and children.

Turnbull announced that the Commonwealth would also draft legislation, in co-operation with the states, to bring on another tranche of national security legislation referred to as post-sentence preventative detention scheme for high-risk terrorist offenders. COAG agreed in principle to develop a nationally consistent scheme for pre-charge detention for terrorism suspects, too, based on the NSW model, but the ACT is reserving its position.