Under the 2014 federal budget, government will cut $925 million in revenue to local government by 2017-18.

At its June meeting, Shellharbour City Council's budget for the 2014-15 financial year was discussed, and a funding reduction of $78,063 as a result of the freeze was revealed.

More than 800 delegates at the 2014 Australian Local Government Association (ALGA) General Assembly supported an urgent motion that highlights the impact that the decision would have on local councils.

ALGA president and Mayor of Marion, in South Australia, Felicity-Ann Lewis, said the grants were of vital importance to local government.

The grants helped them ensure the provision of equitable levels of local government services, she explained.

"The decision to freeze the indexation of [the grants] will impact on the level of local services available to every community across Australia," Cr Lewis said.

"[The grants] are a vital source of revenue to local communities.

"They are used to maintain a range of infrastructure including local roads, bridges, parks, swimming pools, libraries and community halls as well as services to the young, the elderly and community groups of all kinds."

Assembly delegates called for the indexation of the grants in line with the CPI and population growth to be restored immediately.

Another move aimed to reject a proposal by the National Commission of Audit that grants tied to local government should cease.

Delegates also agreed that it was imperative that the Commonwealth consult with local government bodies, states and territories, and communities in the development of white papers on reform of the Federation and on taxation.

Cr Lewis said it was important there was full consultation and debate with the upcoming white papers.

She claimed that the commission's recommendations, and the decision to freeze indexation on the financial assistance grants, threatens to undermine consideration of these issues in the white paper processes.