The NSW Government wants small shires to merge with their bigger neighbours, but these two shires see more community of interest in Canberra.

They believe Macquarie Street administrators are blind to the national capital's pivotal role in south east Australia and should not dismantle the South East Regional Organisation of Councils, which includes the ACT.

Palerang's Mayor Pete Harrison sees huge growth ahead for his shire from Canberra.

"Now, maybe the NSW Government could not care less about the ACT, and maybe they are concerned about managing local government in NSW, and at one level that is perfectly reasonable," Cr Harrison said.

"But the presence of the ACT has a real impact on the south east of the state," he said.

"People who cross the border to work take their kids to school (in the ACT), they play sport there, they shop there, a lot of them get their medical services there.

"In one sense it is not good for us, because we don't get to grow those services locally. At the same time, if that is a natural way for things to work, perhaps we shouldn't be trying to. We should be providing the sort of services that that particular demographic needs or wants."

SEROC's 12 surrounding shires and the ACT promote the region and resource sharing, but under local government reforms the NSW Government wants to split this into two, as well as encourage councils to merge, including Palerang and Queanbeyan.

"Our relationship is with Canberra," Cr Harrison said. "Fiddling things around and merging councils around Canberra and trying to change their focus is not helping us build at all."

Cr Harrison said Yass and Palerang had for the past decade recorded the highest population growth in NSW and he expects the next land release in Palerang to be taken up by Canberrans. He said 47 per cent of Palerang's working population crossed the border every day for work.

Cr Harrison said NSW guarding its turf was to be expected, but the NSW Government must see ACT's position as a unique set of circumstances. "We don't have our own population centre, perhaps that's why we are a target. Our centre is Canberra."

Yass Mayor Rowena Abbey says Canberra has a community of interest for all surrounding councils. "If you ask Eurobodalla they will say their community of interest is more Canberra than Sydney. They would come to Canberra for doctors and other things.

"For too long the conversation has related to 'Canberra does this and that' as though it was a separate entity. SEROC has pulled us all together to say, 'you know what, we are all just one group looking after all the people in this region'."

Yass is negotiating with the ACT Government and developers of West Belconnen newest suburb, which will cross the NSW border, on how to manage access and provide services on a combined basis.

"It is a bit of a test case because at some point in the rest of our life times, other areas will spill over into the Yass or Palerang shire areas," Cr Abbey said.

The two shires say Sydney's Local Government reformers should use Canberra to everyones advantage by sharing resources.