Council met in St Arnaud last night to adopt its budget for 2015-16, which contains a rate and charges increase of five percent.

Chief executive officer, Justine Linley, said the adoption of any rate and charges increase always disappoints councillors, but is necessary to ensure the continued delivery of core services provided by the council across a range of areas and to ensure that commitments to targeted projects are met.

"We are seeing more and more funding being taken away from councils by both the state and federal governments," Mrs Linley said.

"These cuts unfortunately have to be passed on to our ratepayers and the only way to do that is to increase our rates."

Mrs Linley said council and senior officers were very mindful when delivering budgets and rate increases, of the capacity to pay by ratepayers.

"It's never easy telling our ratepayers that their rates are going up again," Mrs Linley said.

"However, it is important that they understand it is not something the council just does to increase revenue. This rate increase is a reaction to the continued cuts in funding being made by the state and federal governments to council."

Mrs Linley said the cost shifting by other levels of government would also impact on fees and charges for various services, not just on rates and charges.

Council is still struggling to come to terms with the impact the federal government's freeze on indexation of its Financial Assistance Grants will have financially.

The freeze is expected to cost council in the vicinity of $576,000 over the next three years. The options facing council are to increase rates each year, or cut services.

There are also concerns within council ranks regarding the proposal by the Andrews Labor government to put a cap on rate increases.

Councillors are mindful of a report released in 2013 that showed the Northern Grampians was not spending enough on roads and assets. There has been a $4 million gap identified each year in the spending.

The freeze on Financial Assistance Grants indexation, combined with any rate capping, would put additional strain on council to either increase rates further, or cut services.

The Local Government Financial Sustainability Review was released in March 2013 by Merv and Rohan Whelan and detailed factors behind councils in rural Victoria being unsustainable.

In the case of Northern Grampians Shire, the factors impacting on costs included population size, remoteness and density.

The report found 'there is an indisputable relationship between cost per head and size of population, large populations support the achievement of economics of scale, resulting in lower service costs'.

It said the increase in recurrent cost per head from large to small municipalities accelerates as population falls below 50,000 and becomes far more pronounced below 15,000.

Following last night's budget meeting, the budget documents will now be put on public display for a period of one month and will be adopted by council on June 15.

It is intended that the budget will allow council to raise an amount of $15,809,650 by general rates, municipal charge and annual service charges.

This is calculated by raising $8,311,100 in general rates, $3,970,700 in farm rates, Cultural and Recreational Land $13,200, Municipal Charge $1,146,100, Annual Garbage Charge $1,502,300 and the Annual Recycling Charge $866,250.

The annual municipal charge has been set at $146.00 per assessment, the kerbside garbage collection services is $260.00, with additional kerbside garbage collection

services being charged at $149.00. The kerbside recycling collection services have been set at $149.00 per assessment.