Lifting the GST to pay for company and personal income tax cuts would do nothing to tackle a yawning $26.5 billion funding gap for Victorian schools and hospitals, the state government has warned.

In an escalation of the GST stoush, Treasurer Tim Pallas has taken issue with NSW Premier Mike Baird's proposal to boost the GST to 15 per cent, claiming it fails the fundamental objective to plug a funding hole for schools and hospitals.

Under Mr Baird's proposal, the 15 per cent GST increase would net about an extra $32.5 billion. This would neatly offset a cut to the corporate tax rate from 30 per cent to 25 per cent, costing $8 billion, a $16 billion income tax cut, and an $8 billion compensation package.

With almost all of the GST gains absorbed by tax cuts and compensation, Mr Baird has also argued for an extra $7 billion from the Commonwealth over the three years to 2020 for the states to meet future funding challenges. This translates to about $583 million extra a year for Victoria.

Mr Pallas said it was not enough to offset a $26.5 billion funding gap for Victorian hospitals and schools created by the federal government's first budget in 2014.

"What everyone seems to have forgotten is that the objective of this tax debate needs to be addressing the funding gap for schools and hospitals, " he said.

"An increase in the GST to fund company and personal income tax cuts in the pursuit of an election win is naked politics. The GST is an unfair tax that has no regard for a person's ability to pay."

Government figures show that after factoring in the health and education funding shortfall, Mr Baird's plan would produce a small $94 million gain for Victoria in 2017-18. But after that the funding gap would balloon to $629 million in 2018-19, $1.3 billion the following year and almost $2.5 billion in 2020-21.

The former Abbott government's first budget inflicted deep cuts on the states, with Victoria losing $17.7 billion for hospitals over the decade to 2025-26 and $8.8 billion for schools over the nine years to 2024-25.

At the time, Mr Abbott said the onus was on the states to come up with a solution. Ever since, debate has raged about how the funding hole might be plugged, with Victoria leading the charge against NSW and South Australia's push to lift the GST.

Like Victoria, Queensland Premier Annastacia Palaszczuk​ is also siding with Federal Opposition Leader Bill Shorten in opposing Mr Baird's plan.

As an alternative, the Andrews government is pushing for a plan to lift the medicare levy by 1 percentage point, raking in an extra $7.6 billion a year nationally, or $1.9 billion for Victoria.

Mr Pallas said he believed a modest rise in the levy - which is currently set at 2 per cent of taxable income -  would be a fairer option. "It is a progressive tax, so the more you earn, the more you pay, but it will also be sufficient to cover the hospital funding gap."