The Business Council of Australia has backed calls by coalition-led state governments for GST revenues to be distributed by the commonwealth according to population.
The GST carve-up is currently the subject of a federal government-commissioned review by former Victorian Labor premier John Brumby and former NSW Liberal premier Nick Greiner.
BCA chief executive Jennifer Westacott on Tuesday said the current distribution system is unsustainable and needs to be reformed.
"The push by the governments of NSW, Victoria, Queensland and Western Australia for the GST to be distributed on a per capita, or population, share basis is in line with our submission to the review," she said in a statement.
BCA research said if federal and state finances were not put on a more sustainable footing, Australian governments could end up with a combined annual budget shortfall of five per cent of gross domestic product by 2050 - about $70 billion in today's terms.
Ms Westacott said state governments provided most of the services demanded by citizens and that demand was growing.
But the states also raise less than half the revenue needed to support these services from their own taxes.
"This means they rely on these inefficient, multiple state taxes which are a drag on the economy and sap productivity," Ms Westacott said.
"Reforming the distribution of the GST is critical to the elimination of these taxes."
The GST review was an opportunity to reform the system, to encourage the efficient delivery of services and facilitates investment to foster economic growth, she added.
The BCA represents the nation's top 100 chief executives.
