System Data takes up space

Whatever you do, Do Not install any Disk Cleaners or Disk Optimizers

They can make this issue and even bigger issue requiring the Reformatting of the Entire Drive.

The Installing the Operating System from Scratch.

Part 1 of 2

There only areas of the Operating System we users have control over & is the User Account Folder (Home Folder)

All other areas are not accessible 

The final word from Apple on Managing the " Other/ System Data “ Category

Other / System Data: Contains files that don’t fall into the categories listed here. This category primarily includes files and data used by the system, such as log files, caches, VM files, and other runtime system resources. Also included are temporary files, fonts, app support files, and plug-ins.

You can't manage the contents of this category. The contents are managed by macOS, and the category varies in size depending on the current state of your Mac.

Part 2 of 2

There is Purgeable Space and there is Empty Space.

Purgeable Space which is Controlled by the Operating System. When the Operating Systems decides the computer needs additional Empty Space, it will move a portion of the Purgeable to Empty space

AFAIK - there is no User Actions to hasten this transition from Purgeable to Empty Space

It can day or longer before this will occur.

The links below will assist in identifying what is taking up space on the Internal Drive and provide possible ways to remove data that is under the direct control of the User ( Home Folder ) . 

Rebuild the Spotlight index on your Mac

What is “Other” storage on a Mac, and how can I clean it out?

Free up storage space on your Mac

GrandPerspective 

How to delete Time Machine snapshots on your Mac.  

View APFS snapshots in Disk Utility on Mac - Apple Support (CA)

Often caused if the Time Machine Drive has not been attached  to the computer and TM Backup is set to run on a Schedule. 

TM Backup will make Snap Shot on the Internal Drive awaiting the TM Backup Drive to be attached. 

Only then will the Snaps Shots be transferred to the External Drive and deleted the Internal Drive.

See used and available storage space on your Mac

Locate backups of your iPhone, iPad, and iPod touch

Is there a Suite of Adobe Applications  used on this computer ?

They may create some very large cache files that can be removed. Though, the Adobe cache files will be recreated as the Applications needs them.

https://helpx.adobe.com/ca/premiere-pro/kb/clear-cache.html

The first thing to do is Re-index Spotlight.

As noted by P. Phillips, all of that are items it couldn't figure out to put in some other category. That mismatch could be caused by a bad Spotlight index. That may knock it down to a more reasonable size. If it doesn't, then it is time to start looking for some of the things noted by P. Phillips.

To further reinforce what @ Barney-15E has mentioned and suggested

I downloaded the Full Version of the Sonoma 14.1.1. " Install Sonoma " Application that was 12.95 GB

Before downloading the System Data was showing about 4 GB used

After having download the above Install Sonoma Application, the System Data was now showing about 17 GB Used

After deleting the Install Sonoma Application and shutting down the computer for the night.

Presto, next morning the System Data reports 3.98 GB in System Data

The object of above is two fold

1 - System Data is a collection of many uncategorized things

2 - Purgeable Space, which in my case , was lucky moved from Purgeable Space to Empty Space