Councils could shed as many as 45,000 workers over coming months as the double hit of coronavirus-forced closure of community facilities and expected rate deferrals smashes their budgets.
Their fate is in the hands of state governments, with the commonwealth saying it's not its job to bail them out.
Local governments aren't eligible for the JobKeeper wage subsidy scheme and Labor says many have already started sacking workers.
Opposition spokesman for local government Jason Clare says the main revenue sources for most are rates and community facilities such as pools, halls and child care.
"With most community facilities closed, councils face a significant loss in revenue," he said on Tuesday.
"Blacktown Council alone is losing $1.7 million per month in fees for services they have had to close."
And councils were also bracing for more people to seek to defer rates or simply not pay them as the widespread economic woes and job losses affect the community.
Australian Local Government Association president David O'Loughlin says councils are bracing for a period of "tough going".
"These immediate and impending impacts on revenue cannot be withstood whilst thousands of specialised employees from closed facilities remain on the payroll with no work and no financial assistance to retain them," he said.
"The vast majority of councils do not have the financial reserves to provide for any further retention of casual or permanent staff associated with closed facilities where user charges have plummeted or expired."
He has written to Prime Minister Scott Morrison to ask for council employees to be explicitly included in the JobKeeper scheme.
But that isn't likely to happen, with Industrial Relations Minister Christian Porter saying the principles of the scheme aren't likely to change before it passes parliament on Wednesday.
He said the national cabinet had decided that if local governments were having trouble keeping their employees in jobs, that was a responsibility for the states.
"Some of them will themselves have quite deep reserves that they can draw on to ensure that even though their business models might be under distress that they can stay engaged and pay their employees. Others won't," he told reporters in Canberra.
"But state government is both best placed financially and organisationally to understand those differences between local governments and make a case by case analysis."