Mr Smith criticised the Conservative Government’s approach to English devolution but ruled out imposing a blanket ban on Labour council leaders agreeing so-called devolution deals.
South Yorkshire councils have already agreed a deal to take more control over their own affairs in a deal with then chancellor George Osborne and Labour council leaders across the rest of the region remain in talks with the Government over similar agreements.
The decision to negotiate with the Conservatives has previously been in a major source of tension between Labour council leaders and the national leadership.
Asked if he would try and stop the discussions, Mr Smith said: “No, I’d be listening to Labour council leaders.
“Some devolution is better than no devolution for sure but we could do a better deal for council leaders, Labour and Tory council leaders.
“We could offer, I think, a much more fair sharing of power. The danger with the Tories is what they are proposing to do is share power but not resources. The danger is we end up entrenching regional differences.”
The Pontypridd MP was speaking after answering questions from Labour members at a packed meeting in Halifax as part of his campaign which aims to unseat current party leader Jeremy Corbyn.
He told members he was happy to be branded “Old Labour” and later insisted he could win support in the Yorkshire marginal seats the arguably more moderate Ed Miliband failed to win at the General Election in 2015.
Mr Smith said: “I would say a central thing completely differently to Ed. I think I would say I will make your families and your communities better off and I will do that by growing our economy and I will do that by being a much more active, engaged, interventionist government.
“I will make sure that we prime the pump in our economy in order to get it growing once more. I would not make the mistake the Tories have made which is assuming you can cut your way to growth in the economy, I’m someone who has worked in business and I know that is not true, what you’ve got to do if you want to grow your business, grow your country is invest in it.
“I’d be much bolder. HS3 should be done. HS2 should be done. We should make sure we are thinking about how we can incentivise through the tax system and through direct government intervention the next generation of industries.”
Mr Smith also rejected the idea floating voters would be put off by a Labour leader using the language of socialism that the party’s then leadership shunned as it won three elections in a row.
He said: “I’m not proposing to put up taxes on the middle classes in this country.
“I think if anything we should be looking to give tax breaks to the middle classes in this country.
“I’m also looking for better investment in the public services the middle classes rely on.
“The big inequality that has existed and grown in Britain in the last 20 years is between the wealthy one per cent and the rest of us.
“The working and middle classes of this country have seen a very wealthy elite move away from them and we need to find ways to narrow that gap.
“That isn’t through punishing people who work hard by taking more of their taxes away from them.
“It is thinking about what the wealthiest couple of per cent in this country are earning and how we can make them contribute a little more to the public services we all enjoy.”