The state government has reversed the decision to charge local councils for an emergency services levy this year.
The government is raising the levy to make access to workers compensation easier for firefighters with one of 12 types of cancer.
Acting Premier John Barilaro and Local Government Minister Shelley Hancock said the 128 NSW councils would not have to pay the additional $13.6 million this financial year.
The new levy would have left the Upper Lachlan Shire Council with a budget shortfall of around $100,000.
The government has faced pressure over the levy rise for months, with Local Government NSW (LGNSW) - the peak body representing councils - warning in May that councils faced significant and unplanned budget shortfalls.
"Local government strongly supports fairer workers' compensation for paid and volunteer firefighters. In many areas, especially in regional NSW, mayors, councillors and council staff are the core volunteers that make up our state's rural fire brigades," president of LGNSW Linda Scott said.
"I welcome the Deputy Premier and Local Government Minister's recognition that this additional, unexpected cost to councils, particularly those in rural and regional areas affected by the drought, would cost communities."
This financial year the levy would have cost councils in the Goulburn electorate almost $500,000.
Member for Goulburn Wendy Tuckerman said, "the government acknowledges that this additional cost presented some challenges for our local councils," she said.
"We also acknowledge that our local councils had already set their 2019-20 budgets before the invoices for the increased emergency services levy were issued and this has caused some angst.
"That's why the government will provide council with funding this financial year to alleviate the immediate pressure on our local councils."
Currently, councils contribute 11.7 per cent of the Emergency Services budget in NSW, with the cost embedded in council rates and further costs recovered through insurance premiums.