The council is facing an increase of more than $1.3 million in expenditure over last year but will receive only $666,000 from the 3.6 per cent increase allowed under rate pegging, leaving it with a shortfall of $634,000.

The $1.3 million increase in expenditure is made up largely of additional loan repayments of $325,000, mandatory staff award increases of $320,000, a requirement to match State Government funding of $353,000 for the rehabilitation of Jimmys Beach and $215,000 for essential staff vacancies which were not filled last year because of budgetary restraints.

Other costs were $50,000 for increased public liability insurance, $30,000 in extra contribution to the Rural Fire Service and $25,000 for extra street lighting.

"I am absolutely appalled at this decision," Great Lakes Council mayor John Chadban said.

"It is quite a blow. There will have to be severe cuts in our operations at all levels.

"Great Lakes Council is at a distinct disadvantage with the current State Government and we are not being supported at certain levels as we would have hoped to be. Council will have to look at having an extraordinary meeting as soon as possible to address the budget."

Councillors first learnt of the Local Government Minister Kerry Hickey's decision during last week's council meeting in Bulahdelah, following a mobile telephone call received by a council director at the meeting.

To the north, there was much rejoicing at Greater Taree City Council with the news Minister Hickey had approved council's application for a rate variation of 5.95 per cent above the pegged amount of 3.6 per cent. While in the south, Port Stephens Council's 6.36 per cent rate rise was also approved.

Unlike Great Lakes Council's application, Greater Taree City Council said the additional $4.135 million would be spent exclusively on roads and bridges and Port Stephens Council's windfall will be spent on roads and environmental rehabilitation.