STATES would be abolished and more power given to city and regional councils in a two-tier government under a radical proposal to shake up the nation's economy.

Under the controversial plan, Queensland would split into six regions and shed the state government in favour of a bigger federal parliament, five city and 19 regional councils nationally.

It comes after The Courier-Mail this week exclusively revealed plans for Cairns, Townsville, Mackay and Rockhampton to unite north of the Tropic of Capricorn under an economic co-operation zone.

Delegates told how the state's north wants to lobby as a unified bloc for big-ticket items in the economic powerhouse region worth about $60 billion a year, splitting the state along economic lines.

In his newly published paper, A New Federation with a Cities and Regional Approach, former Treasury deputy secretary Richard Murray offers a blueprint for macro and micro-economic reform.

He suggests rewriting the Constitution to share revenue and power between two tiers of government.

His paper reopens fresh debate on federation, productivity and governance as it looks at the "multiple, overlapping and interacting problems of the three-tier system of government".

Townsville Regional Council Mayor Jenny Hill yesterday said the paper proposed a much more streamlined system of government.

"Many people bitterly complain about too many layers of bureaucracy and government," she said.

"I think some councils would be up to the task, others might not.

"It would be very hard if not impossible to get the state governments to give up their power and let it devolve to the regions.

"But, because we started out as colonies, we've been left with this legacy of the 19th century.

"It is holding us back in the 21st century."

Originally published as Lose state governments for economy boost