Treasurer Joe Hockey has offered the states and territories incentive payments to sell off public assets and put the money into new job-creating infrastructure.
The details of the deal will be worked out by Prime Minister Tony Abbott and the premiers and chief ministers at a Council of Australian Governments (COAG) meeting in Canberra on December 13.
Mr Hockey made the initial offer at a meeting with state and territory treasurers in Canberra on Wednesday.
NSW Treasurer Mike Baird told reporters after the meeting the offer was "very significant".
"The Commonwealth is no longer saying `get on and build infrastructure'. They are actually coming alongside to look for every opportunity to bring infrastructure forward," Mr Baird said.
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"They have made a proposal ... that any state that undertakes a long-term lease or a privatisation of assets that releases capital on states' balance sheets, they are happy to provide an incentive payment to make that more attractive and to put that towards additional infrastructure."
Federal Treasury secretary Martin Parkinson also gave the leaders a "sobering" assessment of the state of the economy, pointing to subdued growth over the next three years as the mining investment boom subsides.
"The government is sensibly saying `how do we fill that gap', and filling it with productive infrastructure is exactly the right call," Mr Baird said.
Acknowledging past political problems with privatisation, Mr Baird said before any deals were finalised the states would have to "take that to their parties and they have to take that to their communities".
Queensland Treasurer Tim Nicholls said it was a generous offer, but it would not be the "determining factor" if his state decided to go down the privatisation path.
"We've always said we are going to look at the assets we have," he said.
South Australian Premier and Treasurer Jay Weatherill said he was "alarmed" that the federal government was offering incentive payments to sell infrastructure while withdrawing car industry assistance at the same time.
Mr Weatherill raised the issue of the withdrawal of $500 million in assistance at the meeting.
"Joe Hockey and a bunch of the other conservatives are in the `no support for the car industry' camp," he said.
Mr Weatherill was also left with the impression that the coalition federal government's economic agenda was "unravelling" 10 weeks into its first term.
"What could have happened is they could have got in and basically talked the place up," he said.
"Instead we've had this absolute policy chaos, darting from one backflip to another."
