Councillors have been outraged at the decision handed down in the recent federal budget to freeze indexation on the grants, which will cost council an estimated $576,000 over three years.

Mayor, Cr Kevin Erwin, said it was totally unacceptable to shift this burden onto councils, who in turn would need to pass it on to ratepayers in one form or another.

"This just puts too much financial pressure on our ratepayers," Cr Erwin said.

"We are already one of 18 rural councils identified in the Whelan Report, which has been deemed as financially unsustainable.

"Each year council is faced with the difficult choice of balancing service needs of the community with the community's capacity to pay for those services. As a result each year's budget is trimmed and sized with these considerations in mind. Therefore any reduction in non rate revenue will necessarily result in a corresponding increase in rates or decrease in services."

Cr Erwin said additional imposts such as the freeze on indexation and the possibility of rate capping, would make it even more difficult for councils such as the Northern Grampians to survive.

"We are at the stage where it will mean more services will need to be cut," Cr Erwin said.

"We really are stuck between a rock and a hard place and it's time we took action.

"It's about time both the federal and state governments showed their support for the small rural councils who are doing it tough. It is a difficult job maintaining these services as it is. You can only do so much before you have to start cutting through the bone."

Council was advised that the Financial Assistance Grant is currently $6.3 million and constitutes 20% of council's total operating revenue.

Cr Merrilee Reid said she was concerned with the figure of $576,000 that the indexation freeze would cost council over three years, particularly given that in addition, changes to the Fringe Benefit Tax rate will also cost $18,000 over the same period.

"Such revenue reductions cannot be absorbed by the council and will necessarily result in either increased rates or reduced services," Cr Reid said.

"Reductions of this magnitude cannot be taken up with administrative efficiencies.

"On this point Northern Grampians Shire Council is not resting on its laurels. Council has already reviewed many of its services and plans to review many more in the next few years.

"We are undertaking regional procurement programs and implementing shared services between neighbouring shires and these improvements will provide further efficiencies, but these are assumed in our current strategic resource plans."