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Treasurer Joe Hockey has increased pressure on Labor leader Bill Shorten to agree to an increase in the GST if that is what state premiers and treasurers want, saying it would be "ridiculous" if Labor knocked the idea back for political reasons.
Mr Hockey says states ought to re-think their opposition to increasing the GST because they need to be open to ways to match their growing spending commitments with their tax takes and start taking responsibility for their budgets.
He says states need to find a way to afford their "ever increasing expenditure" on public hospitals and schools, and they should reconsider around one third of their tax base because it comes from inefficient taxes such as stamp duties on property, and insurance duties.
"There's no use the states saying 'well we want to change the GST' and then lumping it on the federal government to change it and Bill Shorten says 'no, well we're opposing it, we're going to block it'," Mr Hockey said on Wednesday.
"That's ridiculous. It's not a way to reform the taxation system."
Mr Hockey says Prime Minister Tony Abbott will tell state premiers and chief ministers at a leaders summit next week that they need to eventually take control of public hospitals and schools and they will need a state revenue base to match that.
The Grattan Institute warned on Tuesday that state budgets face an annual $16 billion revenue shortfall by 2024-25 as a direct consequence of the Abbott government's decision to substantially reduce promised transfers to the states for hospitals and schools.
"The Commonwealth's decision to no longer contribute to growth in real spending per person in these areas beyond 2017-18 presents the states with ... a big problem," a Grattan Institute paper said.
Grattan chief executive John Daley says states would raise $7 billion in extra revenue a year - and make states less reliant on that government funding that has been removed by the federal government - by charging a low-rate property tax on all properties.
In a speech outlining the Coalition's tax reform plans later on Wednesday, Mr Hockey will say is it not beyond different levels of government to have a serious debate about taxation reform.
"Surely it is not beyond the capacity of us as a country to have a sensible, mature debate about long-term tax reform more generally," he will tell a PwC tax reform forum.
