National cabinet has ruled out local government applying to the $130 billion JobKeeper program after Lower Hunter councils expressed interest in the funds.
Prime Minister Scott Morrison announced the massive spending package early this week for businesses which lose 30 per cent of their turnover.
The Opposition pushed the government to include councils in the handouts to help preserve jobs, but national cabinet on Friday ruled them out.
A media release from the Prime Minister's office said the recently formed cabinet had agreed that "states and territories were best placed to address issues related to the impacts of COVID19 and local governments".
The program will pay businesses, charities and other not-for-profit organisations $1500 a fortnight for each of their employees.
City of Newcastle chief executive officer Jeremy Bath was eyeing off a potential $25 million from JobKeeper over six months.
He wrote to councillors this week saying his staff were assessing lost revenue in March.
"We are also seeking advice on how rates are treated given they account for 59% of CN's revenue," he wrote.
"The matter is of material consequence. Approximately $25m in funding over six months to be exact."
Mr Bath wrote to councillors again on Friday evening to tell them the money was off limits.
City of Newcastle has deferred rates but has not waived them.
Councils will likely lose income from property rentals, holiday parks, parking meters and other revenue streams during the pandemic.
Newcastle and Port Stephens also face losing dividends from Newcastle Airport, which they co-own.
Independent Newcastle councillor Kath Elliott disagreed with councils "taking resources that are designed for business which are in difficult circumstances".
She said councils had fixed income from rates, a different scenario to businesses facing closure.
"We have significant reserves, too, to help us ride out this crisis," she said. "Businesses don't have that type of resource to fall back on."
Lake Macquarie and Port Stephens councils had also expressed interest in JobKeeper.
Port Stephens mayor Ryan Palmer said before the cabinet meeting that his council had not stood down staff but, if necessary, would look at any federal assistance available to "keep our workers working".
"At this stage, the vast majority of our workers are still engaged in meaningful work," he said.
"If we needed to supplement people's income or keep them working, we'd certainly like to access government assistance."
He said it was unclear if Port Stephens would lose 30 per cent of its income.
"We're taking a huge revenue hit from the closure of the holiday parks.
"We expect a hit from the rental properties we own, the leases and licences. And there's the financial hardship of our people with rates."
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