South Australian Premier Jay Weatherill has proposed lifting the GST to 15 per cent and is willing to let the commonwealth keep the extra money raised.
In return, Mr Weatherill wants a share of the federal government's income tax revenue in place of commonwealth grants.
The premier will take his ambitious tax reform plan to next month's Council of Australian Government's meeting in Sydney.
He said the increasing costs of health and hospital services were more than the states and territories could handle under the current tax regime, and just increasing the GST would not help.
"A one-off increase in the GST rate would provide the states with too much revenue in the short term and too little revenue in the long term to meet growing service delivery costs," Mr Weatherill said on Thursday.
He said his proposal would allow the federal government to use the extra GST revenue as it liked after compensating low-income earners.
While the states would have access to a growing tax revenue base through their share of income tax payments.
"Remodelling our tax system is vital if we're to foster an economy that is modern and adaptable, and that encourages investment in our people, the industries of the future and our cities," the premier said.
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