This study provides a detailed account of the political economy of one of the most politicised and protracted policy debates in recent Australian history: that of tax reform. Beyond providing a comprehensive empirical account of the Australian taxation policy debate over the past three decades, the study seeks to explain why the consolidation of comprehensive taxation reform was so problematic. At a theoretical level, the analysis focuses on the concept of state capacity, or explaining the state's vulnerability to societal opponents of taxation reform. While the study adopts a historical institutionalist framework, the dissertation argues that the evolution of the debate over the study period can't be explained in terms of institutional factors alone. To avoid the determinism of some institutionalist analyses, the study develops a multi-theoretic framework which argues that state capacity should be regarded as the historical product of structural, institutional and micro-level characteristics of the policy environment. Reflecting recent developments in neo-Weberian theory and the protracted nature of the reform debate, particular emphasis is placed on evaluating how the relational capacity of the Australian state varied over the study period. The specific focus here is to assess, in the face of a sustained policy deadlock, whether state or societal actors modified their political strategies to enhance the relational capacity or embeddedness' of the state. In pursuing these objectives the study seeks to provide a theoretically informed and innovative analysis of one of the most important public policy debates in post-War Australian history, as well as important insights into contemporary debates relating to state theory.