"It's a simple idea but I believe it is palatable, it's sensible and it would ultimately help to implement measures to address what I see as the biggest domestic public policy challenge facing Australia in the short term - and that is the sustainability of our health system," Mr Barr told a revenue summit held by the Australia Institute on Thursday.

But federal Treasurer Jim Chalmers quickly rejected the idea, saying it was not something the Commonwealth was considering.

"But we do want to work with the states and territories to make sure that we can adequately fund their health systems," Mr Chalmers said.

Mr Barr said the change could be made whether the stage 3 income tax cuts go ahead or not and would ensure the long-running Medicare levy becomes a progressive tax.

"[This would address] some of the equity issues in our tax system that have been exacerbated by the previous federal government," Mr Barr said in a pre-recorded speech.

"The Medicare levy is now an embedded feature of our tax system. To make it more enduring and to align with the principles of our society, it must also become aggressive in its application."

Under Mr Barr's proposal, people with a taxable income of more than $180,001 a year would pay a Medicare levy worth 3 per cent of their income.

The Medicare levy is currently worth 2 per cent of any person's taxable income, with reductions and exemptions available under certain criteria including for some low-income earners and people who are not eligible for Medicare benefits.

The Chief Minister said more reform was needed in primary care funding but state and territory governments could not wait for decade-long processes.

Mr Barr also pointed to a finding of a 2010 review of Australia's taxation system, which noted an ageing population would reduce some tax bases and raise the costs of health, aged care and dependency.

"What we predictably have now is a national health system at a critical point in terms of its ongoing sustainability. The core of the problem is that the system interface issues are undermining the sustainability of health and care systems and these impacts are being experienced right across the country," he said.

"We know more needs to be done in primary care and we can't wait for decade-long reforms. The federal government needs to quickly roll out the new Medicare urgent-care clinics to improve access to primary care, especially for vulnerable groups such as those in aged care."

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Mr Barr said state and territory treasurers were "notorious" for asking the Commonwealth for more money, but this was for good reason.

"The Commonwealth has taken most of the revenue raising capacity but of course still expects the states and territories to run schools and hospitals," he said.

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