Palerang mayor Pete Harrison said democracy would be the biggest loser if the NSW government adopted the Independent Local Government Review Panel's recommendation of a merger.

The panel also proposes an expanded county council, with Queanbeyan as the regional headquarters serving a combined population of about 88,000 by 2036.

The Future Directions report says NSW's current system of local government isn't up to the job and is weighed down with out-of-date ideas, attitudes and relationships.

It recommends changing financial, infrastructure, productivity and governance structures and enhancing the status of the mayor, who would become full-time, have more financial oversight, and be well paid in larger councils.

Mr Harrison said it was difficult enough representing Palerang's rural and village demographics without linking a small population of 15,000 to one three times that and representing everyone with the same number of councillors.

Palerang turns over $30 million annually and has a staff of 120. Queanbeyan employs 256 full-time staff and turns over $78 million.

Mr Harrison said Palerang no longer accepted it was a financial basket case, and used being small to turn around its fortunes.

''Part of the way small councils attract quality staff is to give them a range of interesting work to do,'' he said.

''Our engineering staff for example thrive on the fact they have had the opportunity to build two sewerage plants and three water treatment plants in the term of this council.''

Queanbeyan mayor Tim Overall has not commented. A statement said Queanbeyan would make a submission to the review panel by September.

A low-rating structure and run-down infrastructure led Yarrowlumla and Tallaganda shires to merge into Palerang in 2004, leaving Braidwood and Bungendore battling one another for status.