It is amongst 43 regional councils to be given the all clear, along with Cessnock, Muswellbrook Shire, Port Stephens, Singleton, Upper Hunter, and Port Macquarie.

But the news for Gloucester, Dungog, and Taree’s councils is not so good, having been found to be "not fit for the future" by IPART. 

Fifty eight NSW regional councils were found to be ‘unfit’. Whilst details on Gloucester and Taree remain unclear (due to IPART’s overloaded website prior to printing), Fairfax’s Newcastle Herald reports IPART found Dungog and Maitland failed to show that they should remain stand alone councils, when a merger would "strengthen the region's ability to be for the future”.

Across the state, nearly two-thirds of councils were identified as having significant problems.

Newcastle, Lake Macquarie, Dungog and Maitland did not meet "scale and capacity criterion", although all but Dungog met overall financial criteria.

"Lake Macquarie and Newcastle did not show that their proposals to stand alone were as good as, or better than, the merger option," the report said.

"We consider a merger of Lake Macquarie and Newcastle is likely to provide system-wide benefits to their communities, better strategic capacity and broader benefits to NSW."

Premier Mike Baird said IPART’s findings, released on Tuesday by the state government, show mergers between councils could unlock $2 billion over the next 20 years through wiping out waste and red tape.

“Four years of independent research, analysis and NSW Government consultation with councils and the community has shown that the current system of local government is not working as well as it should be,” Mr Baird said.

“With 60 per cent of councils not fit for the future, this IPART report shows the situation is now critical and that action is needed to ensure ratepayers get value for money and the services and infrastructure they deserve.’’

The IPART report found that councils have put up rates rather than merge, which it said was not the best option available. 

“Whilst some councils may have been assessed as meeting the financial criteria and fit on the basis of assumed special variation rate increases, it does not mean this course of action is necessarily the best option for local communities under the current reform agenda.”

“There is a risk councils have proposed future SVs to improve their financial performance, and may not have fully considered whether alternative structures for the local government area, such as a merger, may be a better outcome. Structural changes could achieve similar or larger improvements to a council’s general income.”

71 per cent of metropolitan Sydney councils were not fit ‘‘primarily because councils did not propose a merger despite clear benefits.”

That figure fell to 56 per cent in regional areas, where ongoing deficits were also a reason for the fail mark.

Local government minister Paul Toole said most councils had resisted change, proposing rate increases to fix their finances and stave off amalgamation. 

“I urge councils to consider these IPART findings for their council and hold discussions with neighbouring councils and the NSW Government so they can deliver better value for money for ratepayers now and into the future," Mr Toole said.

The government will give councils 30 days to respond.