The NSW government is reportedly considering legislation to allow councils that did not raise rates to the full extent under the rates peg in previous years to apply those unused increases in future.

Local Government Minister Shelley Hancock told The Sydney Morning Herald she wanted to amend the Local Government Act when Parliament is recalled next week.

"The change will allow councils to apply the rate peg more flexibly and respond to changing economic conditions or crises such as bushfires or drought," she said.

Wagga MP Joe McGirr said there needed to be state tax relief to lessen the financial impact on vulnerable people and struggling industries in the region before he would consider supporting the legislation.

"Only on condition that it is part of a broader tax reform agenda," he said.

"I don't want it to be an excuse for shifting more costs back to communities that can't afford them.

"We have got a very significant issue in our region in relation to the bushfires and the Snowy Valleys Council has incurred a lot of costs associated with the fires and it is struggling, I think, with those costs and needs to be supported.

"If this legislation simply means that the council is simply expected to increase its rates and put the cost back to the community, that's not right."

Wagga City Council has previously stated it would lose an estimated $2 million due to the impact of coronavirus.

Mayor Greg Conkey said the council had already made maximum use of its rates peg limits and would look for other ways to reduce costs and cover "significant" shortfalls from disasters.

"We have always gone for the maximum rate increase that we can implement and we went for the special rate variation for our flood levy, so I should imagine we would not be eligible for something along those lines," he said.

"I can't imagine why councils would not impose the maximum that they can because in Wagga and everywhere else there is a significant maintenance backlog and we need a lot of rate revenue to maintain what we already have as well as build new infrastructure."

Cr Conkey said the council had been examining its budget to reduce costs and accommodate for measures taken during the pandemic such as waiving airport fees and offering rent relief in council-owned buildings.

"We need to look at ways that we can rein in the deficits that will be forecast over the next few years," he said.