Prime Minister Tony Abbott is encouraged by proposals for his leaders retreat with premiers, including Mike Baird's call for an increase in the GST to 15 per cent.
He also noted South Australian Premier Jay Weatherill's suggestion to broaden the base of the GST to take in financial services.
"I think Australians should be hopeful that this generation of leaders is capable of addressing the big subjects," Mr Abbott told reporters in Sydney on Monday.
NSW Premier Mike Baird believes the best way to deal with a looming $35 billion shortfall in health funding is to raise the GST.
Mr Baird will take a proposal to increase the GST to 15 per cent from 10 per cent when he meets Prime Minister Tony Abbott and other premiers at a leaders retreat in Sydney this week.
"I know that's not popular. I know that's not something that people want to talk about but unfortunately we must," Mr Baird said in a pre-recorded message released on Monday.
Mr Baird's proposal would also fund a compensation package for households earning up to $100,000 to ensure they're not disadvantaged.
Treasurer Joe Hockey has repeatedly said there must be unanimous support for changes to the GST from the states and territories.
That seems unlikely at this stage, with the Victorian Labor state government putting its foot down against changes to the GST.
Instead it will propose an increase in the Medicare levy to fund future health needs.
Victorian Treasurer Tim Pallas says a GST hike is not fair.
"It's not reasonable for the Abbott government to propose it or for any of their apologists like Mike Baird to be advocating for it," he told ABC radio.
Shadow treasurer Chris Bowen agreed, slamming Mr Baird's proposal as a weak and false argument as the best solution.
Labor backbencher Graham Perrett also noted the prime minister had said 33 times before the 2013 election that there would be no changes to GST.
"I'm sure he is an honorable man who keeps his word," he told Sky news.
But former federal Liberal leader John Hewson, who failed to convince Australians of the need for a GST more than 20 years ago, supports the Baird proposal.
"I think Mike is right that you can do it with the GST," Dr Hewson told ABC Television.
Government frontbencher Simon Birmingham hopes there will be a proper and holistic conversation at the leaders retreat about all the different issues which frustrate people about the federation.
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