Choking smoke from NSW bushfires and the direct impacts of the ACT's Orroral Valley fire caused a significant downturn in business activity across Canberra and the region in January.

The ACT said it asked the federal government to activate the disaster recovery funding arrangements after the smoke blanketed the territory, as it had opened a relief centre to help people affected by fires across the border.

But the joint Commonwealth, state and territory funding could not be accessed for a natural disaster occurring in another state, the ACT told the Royal Commission into National Natural Disaster Arrangements.

"Whilst the ACT progressed the activation of the relief centre regardless, the circumstance has identified a policy weakness in the DRFA and inhibited an immediate and effective response by the Australian government," its submission said.

The ACT government has also sought federal help to restore the Namadgi National Park after the Orroral Valley fire burnt 88,000 hectares, or more than 80 per cent, of the park.

"As activities associated with environmental recovery at not eligible under the DRFA, the ACT may be constrained in its ability to build the park back better and make it more resilient to bushfires," it said.

As a fully self-insured jurisdiction, the ACT was also limited in being able to access the DRFA's 'build back better' provisions.

ACT official Bren Burkevics said the territory was still in discussions with the Commonwealth over the fire.

"It is a significant gap for the ACT at the moment in pursuing funding under the DRFA to replace areas or to recover the environmental needs of Namadgi National Park," he said on Friday.

Western Australia told the royal commission it did not want a stand-alone Commonwealth agency to respond to natural disasters, instead advocating for the federal government to support mechanisms that allowed for better coordination of recovery efforts.

"What we're fearful of is a large stand-alone agency that might divert resources," Department of Fire and Emergency Services deputy commissioner Mal Cronstedt said.

Victoria told the inquiry the coronavirus pandemic and restrictions had made the recovery from the bushfires more challenging, but it had not slowed the clean-up of destroyed properties.

"We are conscious that the bushfires have had a particular impact on those communities. Those impacts have been amplified by almost a double whammy of COVID-19," Bushfire Recovery Victoria CEO Lee Miezis said.

"It's important that those communities know that they're not being forgotten."

Australian Associated Press