LAKE Macquarie council's budget will stay in the red for another two years due to a frugal federal budget.
The council ended the 2013-14 financial year with an $8 million deficit.
Its projected deficit for this financial year is $2.2 million.
Lake Macquarie mayor Jodie Harrison said the council estimated it would return to surplus by the 2016-17 financial year.
It initially planned to achieve a balanced budget six months earlier, but Cr Harrison said a number of federal cuts had caused "blow-outs".
These included the freezing of Financial Assistance Grants, which support local community groups, an increase in the fuel excise and raising the Fringe Benefits Tax.
Cr Harrison addressed the council about the federal budget's impact in a mayoral minute.
"The imposition of these cost increases will place significant stress on council's finances and forward financial projections and requires a recalculation of our Operational Plan and Delivery Program to ensure we remain financially sustainable," she said.