Hi David,
I've been facing the same issue on M1 MacBook Air. "System Data" is taking up space of around 60 GB out of 256 GB. I've tried a lot of things that I've read online, but one tool which is mentioned in a different thread helped me a lot. I would suggest you to check it once.
However it will only give you the information about which directories & files are taking up the storage & we have to delete the unnecessary files on our own.
I've deleted some data under USERS > 'username' > Library which cleared over 20GB out of the 60GB.
I hope it will be helpful for you.
Always take a backup of your system.
Please proceed with caution & do not delete any files if you don't know their purpose.
https://osxdaily.com/2016/04/29/best-disk-storage-analyzers-mac/
OmniDiskSweeper - https://www.omnigroup.com/more/
Have a great day.