Labor states will wave through a rise in the GST if Prime Minister Malcolm Turnbull secures a mandate for a tax reform package from voters and wins the next election, potentially clearing one of the biggest hurdles to tax reform.
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On Monday, Mr Turnbull pledged that any tax changes would be fair and that there would be "no disadvantage to the most vulnerable Australians, to less well-off Australians".
"The job of the tax system is to find the revenue to pay for the services that we need from governments ... but the tax system also has got to work in a modern way, in a contemporary way to provide the right incentives for people to work, so it has to reward work, it has to encourage investment, it has to encourage businesses to take on new staff, and so forth," he said.
As Mr Turnbull stressed it was premature to say "the government has landed on one particular change or another" on tax reform, clear signals emerged from the Victorian and Queensland Labor governments that those states would not block a rise in the GST if the Prime Minister received a mandate from voters.
Victoria's Daniel Andrews and Queensland's Annastacia Palaszczuk have publicly stated their opposition to a GST rise from 10 per cent to 15 per cent and instead proposed a rise in the Medicare levy.
But privately, key allies of the two Labor premiers confirmed to Fairfax Media on Monday the two state governments would respect Mr Turnbull's mandate if he won the next election.
"If he takes it to an election and he wins, we will respect that mandate. Don't expect Victoria to stop it," one ally of Mr Andrews said.
Similarly, well-placed sources in the Palaszczuk government said the GST rise would not be fought if Mr Turnbull defeated Mr Shorten and that instead, "the best deal possible for Queensland" would be pursued.
This positioning by Victoria and Queensland on the reform is crucial because when former prime minister John Howard introduced the GST in 1999, accompanying legislation required all states and territories to support any change to the tax's rate.
South Australian Labor Premier Jay Weatherill and ACT Labor Chief Minister Andrew Barr have already left the door ajar to a GST rise, provided there is adequate compensation for low and middle-income earners.
With support from the Liberal states of NSW, Western Australia, Tasmania and the Northern Territory in prospect - subject to demands for change to specific aspects such as GST distribution formula from WA - the federal government now looks more likely to clear the hurdle of states' opposition.
Opposition treasury spokesman Chris Bowen said on Monday that "we are working on the basis we will win the next election and we will campaign against the GST".
But federal Labor could end up politically isolated after the next election if it lost and continued to oppose change.
Mr Weatherill told radio station 5AA on Monday that he could back a potential GST hike if there was an increase in the overall tax take and compensation for low-income earners.
"Nobody wants to say it out loud because it's unpopular to say it. But we're not raising enough money to actually meet the needs that the community are putting on us. It's a simple truth," he said.
A spokesman for Mr Barr said on Monday: "We are open to the proposal but we would need to see detailed modelling. It may be that an increase in the Medicare levy is more appropriate to address long term health funding issues."
A range of options for GST reform are being considered by the federal government, including raising the GST to 15 per cent and broadening it to include exempt items such as fresh food, health care and education, raising the rate to 15 per cent but keeping exemptions or raising the rate to 12.5 per cent.
Nationals MP David Gillespie released Parliamentary Budget Office modelling on Monday that showed if Australia raised the rate to 15 per cent and broadened the tax to cover 97 per cent of items like New Zealand - an increase from the 47 per cent of items currently covered - it would raise an extra $65.6 billion in additional revenue by 2017-18, effectively doubling the tax take.
With Lisa Cox, AAP
