The New South Wales Liberal Premier Mike Baird has called for an increase to the GST from the current 10 per cent to 15 per cent.
He says he plans to present the proposal when he meets with Prime Minister Tony Abbott and other state and territory leaders in Sydney.
Mr Baird argues that raising the tax is the best way to deal with shortfalls in health funding.
"The concept in terms of how we deal with health funding - and that's maintaining existing services - is the biggest challenge we face in this state and indeed across the country. If you get to a position rolling forward, both Budgets - Commonwealth and states to 2030 - when you get to that position on reasonably conservative assumptions you get to $45 billion of deficits, of which $35 billion is health costs. So the big challenge is how to we fund health costs because at the moment be haven't got the capacity to do it and really we need to get on with the job."
One Labor Premier, South Australia's Jay Weatherill, has indicated he's willing to consider some GST changes - but not an increase.
Mr Weatherill says there needs to be more discussion about possibly increasing the range of goods and services covered by the GST.
"I haven't indicated any support for an increase in the GST. What I've indicated is that there should be a discussion about new revenue measures. My proposition is that we should actually increase the GST in terms of its breadth by covering financial services. It's not an area that's presently taxed. It's an omission from the scope and it doesn't hit poorest families the hardest. It's one of the few changes you can make to GST which can increase the revenue, but not actually hurt poorer families the hardest. That's the sort of change I want to see, that is any change that can raise revenue but it doesn't come out of the pockets of those who can least afford it."
Federal Labor's treasury spokesman, Chris Bowen, accuses the Abbott government of cutting funding to the states as a tactic to try to force them to agree to increase the GST.
"Tony Abbott and Joe Hockey always had the plan to cut $80 billion out of health and education to make the States accept the need to increase the GST or broaden the base. Mike Baird has capitulated to this campaign from his friend and supporter, Tony Abbott. Mike Baird can do that if he wants to, but the Labor Party will stand consistently against increasing the GST. This is not a policy that we support or will support, and clearly other Premiers and State Treasurers have made the case they will not support it either."
The Commonwealth cannot raise the G-S-T without the unanimous support of the states and territories.
The Victorian government has already flagged it won't support the plan.
Premier Dan Andrews says at the talks in Sydney, he will instead propose an increase to the Medicare levy to fund future health needs.
"My position on the GST is very clear one. I will not be supporting an increase in the rate of the GST or radical changes to the sorts of goods and services that basically attract the goods and services tax. We have been very clear about this. The Prime Minister went to the last election and he said there'd be no cuts to health and no cuts to education. He then did exactly that. He cut hospitals and he cut schools. Now he'd like to increase the GST. He'd like everyone to pay for his lie."
Prime Minister Tony Abbott has refused to say whether he'd like to see an increase in the GST.
But he says he's encouraged by the debate.
"I'm just not going to speculate. But I certainly think it was a very constructive proposal from Premier Mike Baird. It's a sign that New South Wales along with South Australia are thinking seriously about what we need to do to have better schools, better hospitals in the years to come and a more effective federation in the years to come."
All the GST revenue collected by the federal government is redistributed to the states under a complex formula.
Western Australia has long argued that it's not been getting its fair share.
WA Premier Colin Barnett says that's one key issue that still has to be addressed.
But he says there are many proposals on the table about reforming the GST that are also worth considering.
"Certainly distribution from WA's point of view, I think you need to look at online purchasing - seems to me there needs to be an equality between consumer purchasing whether it's at a shop or buying online, I think also you need to look at the coverage, should the exemptions - like fresh food - still be in place? Because they add enormously to the complexity of GST and the cost of collecting it. The point I make is that states need to go away in my view, it might take a year, it might take longer - and sit down and go through all of the issues and present a united case to the federal government. That's sensible reform."
