The Secretary to government in the Norfolk Island, Peter Maywald says Australia's proposal to reduce the islands powers of self government is a formula for turning it into a welfare dependent state.
As part of the proposal Australia said it would be responsible for immigration, customs and quarantine, and in return support facilities such as health and education which it does not currently do.
Mr Maywald says they reject the strategy because Australia will take away the islands' major source of income and impose Australian tax.
However, Mr Maywald believes Australia's suggestion to resume power has its roots in history.
"The Australian central federal government is able to control all the other mainland states and territories because it holds the purse strings, it never has in the Norfolk Islands, we've been able to raise our own revenue, and that's meant they haven't been able to control our local social and economic policies they way they have for the states and territories. If they resume that power of taxation that will give Canberra complete control."