Employment Minister Eric Abetz defended the lack of federal funding for the buy back of the homes contaminated by loose-fill insulation, continuing to insist on Wednesday the Commonwealth's "very strong legal advice" was that asbestos was a matter for the state and territory governments.

Senator Abetz defended his decision to refuse Chief Minister Katy Gallagher's request for the Commonwealth to pay two-thirds of the cost of the $1 billion response, calling it an "ambit claim" and arguing asbestos should be treated differently to natural disasters such as bushfires and floods.

He refused to release the legal advice, citing legal privilege.

"When the ACT became self-governing, along with it came taking on the responsibilities that come with self-government," Senator Abetz told radio 2CC.

"The days of saying the federal government will assist every state and territory if it's got a particular issue or a particular problem are regrettably over, inasmuch as the federal government now no longer has the financial capacity and wherewithal to provide the funds."

Both governments, home owners and bureaucrats agree Mr Fluffy is a costly crisis, but funding won't be provided from Australia's national scheme for disaster relief and recovery because events caused by human activity are specifically excluded.

The guidelines exclude consequences of poor environmental planning and commercial development.

The scheme is administered by the federal government to provide partial reimbursement to state and territory governments after damage caused by disasters.

Guidelines from the Attorney-General's Department say it is "designed to alleviate the significant financial burden placed on states and territories" and to help disaster-affected communities. However, the scheme only covers a "naturally occurring rapid onset event" such as bushfire, earthquake, flood, storm or landslides.

Even tsunamis and meteorites would attract federal funding.

The guidelines say a disaster "threatens or causes death, injury or damage to property or the environment" and requires significant and coordinated multi-agency and community responses.

Senator Abetz said that in the event of a fire or other natural disaster, the Commonwealth would offer the ACT a financial facility similar to the concessional loan.

Disaster responses funded by the national scheme include clean up from Canberra's Australia Day 2013 storms; the Canberra 2003 bushfires; flooding and storms in Victoria in September; and storms in south-eastern New South Wales in March.

A report by the ACT Government's asbestos taskforce noted the Commonwealth contributed $5.6 billion to Queensland after floods and cyclones devastated the state in 2010 and 2011, including about $1.8 billion raised through a special budget levy.

The report estimated the cost of the disaster response as equivalent to about 17 per cent of Queensland state government revenue, while Mr Fluffy will equate to about 22 per cent of the ACT's total revenue.

Opposition employment spokesman Brendan O'Connor was not available for comment.

Labor MP Gai Brodtmann said she was disappointed the Commonwealth would not contributing more to the Mr Fluffy bill.

"The remediation process happened on the Commonwealth's watch – it pre-dated ACT self-government," she said. "It's disappointing to see the Commonwealth Government declare its memorandum of understanding with the ACT Government is of no consequence and no longer operative."

New South Wales state MP Steve Whan said the federal response left "an unconscionable gulf defined by a line on a map".

"It is absolutely unbelievable that the Federal government has today relied on legal advice to shirk responsibility for the asbestos crisis. The offer of a $1 billion concessional loan to the ACT is a positive step, but for the same offer to not be made to NSW is unconscionable."