NSW Productivity Commissioner Peter Achterstraat has released his final report on the review of infrastructure contributions, recommending sweeping changes to the infrastructure contributions system for what the state government considers as the biggest shake-up in three decades.

One of the key recommendations is to allow rate pegging to reflect population growth in order to enable councils' income to increase along with population.

Wagga City Council, like every other council in the state, has been restricted in the 2021-22 financial year by a system that capped the increase in rates at 2 per cent.

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The Productivity Commission's report found the average NSW council rates stood at $591 per capita last year compared to an $835 average for all other states.

Wagga mayor Greg Conkey said if the suggestion is accepted by the state government, it would be "a long overdue shake-up" for the rates system.

He said the council's inability to set rates had hindered its capacity to deliver important infrastructure projects.

"It's great to have cheaper rates, but it's affecting someone in the long run when this infrastructure falls way behind," he said.

"We need to seriously look at this ... because it's quite evident we can't carry on the way we are."

Cr Conkey said residents are missing out on good roads, footpaths, parks and sports facilities because of this funding shortfall.

"If we have insufficient funding to keep the infrastructure up to speed, the whole community suffers through increased congestion, lower productivity and lower quality of life for everybody," he said.

"We can't have infrastructure falling down with this massive backlog."

Committee 4 Wagga chairwoman Justeen Kirk said the subject of rates is "very sensitive" because an increase could come as a burden to some ratepayers.

However, Ms Kirk said upgrades to the city's infrastructure do cost money and the council needs an adequate pool of funds to provide the services expected of them.

"If we want people to come live in our great city then we need to have the infrastructure to keep them here," she said.

"It is no good having the houses and people arrive and not have the rest of the enabling infrastructure to keep them.

"We need parks, we need open space ... you need to be able to safely move around so footpaths and roads are necessary to travel from place to place."