In reality, the grants which normally rise annually in line with Consumer Price Index (CPI) have been frozen, causing a massive hole in local council budgets.

In the Nambucca Shire, mayor Rhonda Hoban told the Guardian the shortfall this financial year alone was $121,000, which would compound over the coming four years.

“This will effectively chew up the effects of the rate increases,” Cr Hoban said.

“The whole point of the rate increases was to gain additional funds for our roads and bridges ... this means we will lose this advantage.”

The FAGs are the second largest source of general purpose income for the shire, accounting for about 30 per cent of rate income.

As the funds are untied, councils are free to use the money as they see best to provide services to their communities - this includes everything from roads and bridges to recreation facilities, libraries, neighbourhood centres and services for youth, the elderly and the disabled.

For Cr Hoban it is an extremely frustrating blow.

“The State Government tells us we are unsustainable and to increase the rates, and then you get this from the Federal Government,” she said.

“We have already asked our rate payers to dig deep on eight separate occasions in the last 10 years, plus the special rate variations for the next three years.

“Apart from hospitals, police, the highway and schools, every other community service comes out of our local government budget.

“Rate income doesn’t sustain the shire - it never has and it never will, so this loss sees us slipping back even further.”

Cr Hoban said council managers had been asked to identify any savings that could be gleaned from their areas of operation.

“But we have been actively pursing efficiencies and savings for the last six years,” she said.

“What really annoys me is that previously the value of FAGs was one per cent of tax revenue, in recent years that has slipped to 0.7 per cent ... now it will decline even further to just 0.53 per cent by 2017-18.”

In his announcement about the grants, Federal Member for Cowper, Luke Hartsuyker, highlighted other Commonwealth programs such as Roads to Recovery, Black Spot and Bridges Renewal.

However Cr Hoban said the Bridges Renewal funding operated as a 50/50 split with councils.

“The only councils who will gain from these are those who have funds in reserve and therefore an adequate borrowing capacity,” she said.

The council has joined other local authorities in writing to the Federal Government, as well as the ALP and the Greens, in a push to have indexation restored.

Nambucca Shire Council will receive $2,505,000 of FAGs funds this financial year.

* Nambucca Shire Council is also due to receive $1 million from the Roads to Recovery program.

The first round of this funding expired in June. The legislation to release the new program worth $2.1 billion to local councils Australia-wide is part of the Land Transport Infrastructure Amendment Bill 2014, which is due to be debated in the Senate this week.