That is according to a report launched at the Regional Cooperation and Development Forum.
The report, State of the Regions: Inequality between and within regions prepared by National Economics for the Australian Local Government Association (ALGA), confirmed trends presented in recent OECD and IMF research papers showing the link between income inequality at a regional level and economic growth on a national level.
Dr Peter Brain, leading economist and co-author of the report, said: "The report identifies a need for policies and investments to be implemented on a region-by-region basis to decrease the existing inequality across Australian regions, which was expedited by the mining boom.
"Local government is strategically placed to coordinate job-creation policies at the local level to improve Australia's economic performance and hence make an important contribution to national economic growth."
The President of the ALGA, Mayor Troy Pickard, said: "I welcome the report's recommendation for a stronger partnership between the Australian Government and Local Government to improve the country's economic performance, particularly through targeted investment in Local Government services such as local infrastructure maintenance and provision.
"The success of programs such as the Regional and Local Community Infrastructure Program in 2008-10 and the longstanding Roads to Recovery Program highlights the value and effectiveness of a direct partnership between the Federal Government and Local Government in delivering major outcomes in job-creation and economic stimulation.
"However, the decision in the 2014-15 Federal budget to freeze the indexation of Financial Assistance Grants (FAGs) funding will cost local government an estimated $925 million over the forward estimates. Financial Assistance Grants, which are particularly important for poorly-resourced councils, are a major element in the national strategy to combat inter-regional inequality.
"The State of the Regions report reinforces ALGA's call to support regional economic development through diverse infrastructure investments determined by regional priorities in partnership with Local Government.
"Every year's delay in the adoption of this approach imposes significant costs on the national economy by limiting the growth potential of both country and metropolitan regions."