Each State has its own police force. If you're fined by a police officer the money you pay goes to the state government. As well as fines, every State raises it's own money through taxes, and they get some money from the federal government. The federal government's job is to look after the decisions that affect all Australians, and to provide the services all Australians need, like a national defence force. Federal parliament in Canberra makes national laws and the federal government deals with other national governments.
Workers also pay income tax to the federal government.
And by the way, the name, federal government, comes from the word federation, or union, of all the states and territories. Canberra Canberra is the capital of Australia, and it's home to our Federal Parliament. There was a lot of rivalry between NSW and Victoria, back when the six colonies wanted to become a federation. These two colonies had the most people, and they both thought that their cities, Sydney and Melbourne, should be the national capital. Eventually when the premiers of each colony met in 1899, it was agreed that the federal capital should be somewhere in NSW, but not closer than 100 miles to Sydney.