The elected council voted at this month's council meeting to call on the NSW government and opposition to return the full levy local councils pay to fund waste diversion initiatives.

The waste levy requires certain waste facilities to pay a contribution for each tonne of waste it receives, with an aim of deterring landfill and promoting recycling and resource recovery.

The Environmental Protection Agency said all waste levy funds were returned to consolidated revenue, with a third to the environment portfolio and the rest retained by the NSW government to fund "essential government services".

Newcastle council has long been critical of the levy and the relative return it receives from paying it.

Analysis included in the lord mayoral minute said City of Newcastle was liable for the metropolitan levy rate of $151.60 per tonne of landfill, compared to the regional levy rate of $87.30 per tonne.

This was estimated to have burdened Newcastle ratepayers by an extra $2.1 million this financial year and $18.7 million over a decade.

The motion said $37 million was currently being paid in levies and only $175,000 returned to council to fund its resource recovery projects, "which is the actual intention of the levy".

"So for example, in just the last three years alone, where we were would [have paid] over $90 million in Section 88 waste levy to the NSW government, we could have actually funded all of our FOGO [food organics and garden organics] that we're doing, and all of our MRF [material recycling facility] work at Summerhill," lord mayor Nuatali Nelmes said.

"It wouldn't have to come from ratepayers, and those significant expenses could actually be spent on other infrastructure."

Greens councillor John Mackenzie said only 13 per cent of the total levy collected had gone into waste reduction programs, and if it had all been reinvested, "we would be approaching the waste targets that have been outlined in the NSW waste strategy".

"Instead we're on the back foot and all of the cost has been shifted to councils like ours," he said.

An EPA spokesperson said the waste levy funded "critical recycling programs" including the NSW Waste and Sustainable Materials Strategy 2041, backed by $356 million over five years to support programs and grants for councils reduce waste and transition to a circular economy.

"Next year, the EPA will be undertaking a review of the waste levy that will put in place a formal five-yearly review of the waste levy including of its boundaries to ensure it is continuing to achieve its policy objectives," the spokesperson said.

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