Several council chiefs say they will have to return to the drawing board to manage the financial vacuum, with added rate rises and the slashing of community projects under consideration.

Municipal Association of Victoria (MAV) revealed the financial time bomb yesterday, which showed indexation of Commonwealth financial assistance grants would be freezed for three years in order to redress the national ledger.

While most rate rises hovered between 3 and 6 per cent for next financial year, several south-west councils now believe they might have to be pushed upwards of 8 per cent in order to maintain existing services.

Corangamite Shire chief executive Andrew Mason said number-crunching at its Camperdown headquarters revealed an estimated $170,000 shortfall next financial year. 

Over the three-year freeze period, the figure blows out to $1.6 million. “We’re surprised and disappointed,” Mr Mason said. 

“It’s still early days but without federal government grants being indexed, we estimate an impact of $170,000 in the 2014-15 financial year.

“It’s more likely projects will be re-examined and either cut or delayed rather than raising rates in the short term.”

Moyne Shire mayor James Purcell said the council would have to return to the drawing board only weeks after releasing its draft budget with a cash blow-out of $1.3 to $1.5 million anticipated over the next three years.

“The most frustrating aspect of all is that rates will have to rise but people in the south-west won’t see any direct benefit,” Cr Purcell said.

“It’s cost-shifting from federal to local at its most basic. 

“The fact that councils have to go and re-write their budgets is another cost in itself.”

Warrnambool City Council chief executive officer Bruce Anson said the municipality’s urban composition meant it was less vulnerable to the indexation freeze, although it will still cost the city $450,000 over the next three years. 

He said it was unlikely there would be a further rate increase on top of the already announced 5.5 per cent for 2013-14.

“Clearly there is significant budget tightening going on but (Warrnambool City) is less exposed than rural councils, although it will still have an impact,” Mr Anson said.

MAV president Bill McArthur said the federal government cuts left councils with only two options — increasing rates or cutting community projects. “Councils have only one form of own-source revenue — rates,” Mr McArthur said.

“For smaller shires it could amount to an annual 5 per cent rate rise, on top of any other proposed rate increase, just to recoup the lost federal money.”

Glenelg Shire chief executive Sharon Kelsey said the council would examine the federal budget and see if any modifications needed to be made to its own budget before next month.

Both Moyne Shire chief executive David Madden and Southern Grampians chief Richard Perry were unavailable for comment yesterday.