Big states form pact as COAG 'too slow'

NSW and Victoria accuse Canberra of lethargy on productivity, forming a pact to fast-track economic reform outside of COAG.

NSW and Victoria have accused Canberra of lethargy on productivity and formed a new pact to fast-track economic reform outside the existing Council of Australian Governments.

Expressing frustration with the commonwealth's "driver's-seat" position at COAG, the premiers of the two states vowed yesterday to work together on reforms to energy efficiency programs, apprenticeships, education and taxation.

NSW Premier Barry O'Farrell and his Victorian counterpart Ted Baillieu said their states, which are not direct beneficiaries of the nation's mining boom, must turn to economic reform to create jobs and growth.

"Our aim is to be party to driving reform, driving productivity improvements and driving additional jobs," Mr Baillieu said.

"We have both been focused on productivity improvements; both states have suffered from productivity issues."

The pact, which targets areas that sit at the heart of Julia Gillard's reform platform, came under attack from other states.

South Australian Premier Jay Weatherill warned that the "secessionist eastern bloc" could threaten the federation and Queensland's Anna Bligh said the move was evidence that the two most populous states were insecure about their future place in the national economy.

The Prime Minister cautiously welcomed the states' announcement as showing reform-mindedness and said she hoped it would deliver progress in areas such as creating a national occupational health and safety system.

COAG was formed in 1992 to replace the old annual premiers' conference and has been the nation's key apparatus for federal-state relations.

Mr O'Farrell and Mr Baillieu made clear they would remain engaged with COAG but said there were some areas in which they did not want to wait for national agreement on reform.

"What it is saying is that where reforms can be delivered quicker to the benefit of state and communities they should be pursued," the NSW Premier said.

"This is all about saying, we're all heading in the same direction, but if there are early and easier steps states can make to assist that, then we should make them."

In an interview with The Australian after their joint announcement, both leaders stayed true to their reputations for caution and moderation.

Yet they made it clear they were unhappy with the federal government riding roughshod over the states on mining tax, poker-machine reform, health funding, coal-seam gas concerns and other issues.

Mr Baillieu cited the Building the Education Revolution and home-insulation schemes as examples of the government stepping outside its sphere of competency, and said the states needed to reassert themselves.

He said the move was not about "ganging up" on other states. "The COAG process can be very frustrating and it also can be subject to the political whim of the day, or political influence," the Victorian Premier said.

"It's not about denying the opportunity for competition between NSW and Victoria. Our focus is going to be on driving some reform.

"We have also seen the limitations that COAG has. And we have seen the fact that the commonwealth is in the driving seat for COAG reforms."

Fellow state Liberal leader Colin Barnett poured cold water on the anti-COAG push, reaffirming long-established thinking that Western Australia faced many and varied challenges ahead that had little to do with concerns in the east.

A spokesman for Ms Gillard said the commonwealth welcomed states "coming to the COAG table with their sleeves rolled up" and ready to talk about serious reform.

"If that's the aim, then they should start by working together to finally deliver on national occupational health and safety reform and national trade licensing to help tradies move more easily across the country," the Prime Minister's spokesman said.

ADDITIONAL REPORTING: LEO SHANAHAN, JOHN FERGUSON, MICHAEL OWEN, TONY BARRASS