Mr Dutton has floated the idea of excluding household electricity bills from the consumption tax, which would deprive the states and territories $7.5 billion over four years.

"That would be a budget blower, an absolute budget blower," Treasurer Scott Morrison told reporters in Canberra on Wednesday.

Mr Dutton - who is positioning for another tilt at the prime ministership - has highlighted lowering power prices as one of his key policy focus areas.

"I think that is important for pensioners, for self-funded retirees, for people that are finding it difficult to pay the bills each month," he told Melbourne radio station 3AW.

Mr Turnbull said the idea was "certainly very expensive".

"Also, needless to say, the states would definitely expect to be reimbursed," the prime minister told reporters.

"If one were to remove a big item like that from the GST pool, obviously the states would expect to be reimbursed and that would have to come from other federal taxes."

Mr Morrison said the idea would also scuttle a GST package recently struck with Western Australia.

"You can make all sorts of promises about how much money you're going to spend but at the end of the day, you've got to account for it," he said.

Junior minister Craig Laundy, a key Turnbull supporter, questioned whether it was economically responsible to narrow the tax base.

Mr Laundy told Sky News the idea to drop GST from energy bills looked like populist - not conservative - policy.

During a separate press conference, Resources Minister Matt Canavan made it clear the GST proposal did not have the government's backing.

Senator Canavan also dismissed Mr Dutton's idea to establish a royal commission into the energy sector.

"Backbenchers can put forward policy ideas and discussions - I certainly took that liberty when I was a backbencher a few years ago - so I welcome these contributions but it's not the policy of the government."

Labor says Mr Dutton needs to do the sums again on his "crazy thought-bubble" proposal.

"That will have only one result - cuts to essential services, primarily health," shadow treasurer Chris Bowen told reporters in Canberra.

"These thought bubbles are dangerous because he is the alternative prime minister of Australia."

The Victorian Labor government also rubbished Mr Dutton's "thought bubble" and said the federal Liberals were embarrassing.

"What's happening federally is an absolute circus, it's a joke and it's a worldwide embarrassment," state Energy Minister Lily D'Ambrosio said of the leadership tussle.

Australian Associated Press