Hampshire County Council will consult widely with local residents, businesses, community groups and schools ahead of setting the budget for next year.
The cabinet is starting to prepare its budget plans to support vital public services, based on government funding plans and future demands on services, particularly the elderly and most vulnerable.
The government provides more than 60 per cent of the councils budget through grants and the rest has to be paid for by the council tax payer and based on the Governments own predictions, council tax bills need to rise by an average 6.7 per cent next April.
The council's leader, Ken Thornber, is angered by the fact that when this year's grant was calculated, the government used census data from 1991 rather than 2001 and plans to do so again in 2005/06. The government itself estimates Hampshire loses around £7.5 million per year using the out of date figures - equivalent to nearly two per cent on the council tax.
The council will consult with representative groups during the autumn including Hampshire Strategic Partnership, businesses groups, Schools Forum, voluntary sector, workforce, council tax payers, residents associations and Hampshire MPs. A number of consultation options are being considered.
Mr Thornber said: "Hampshire County Council places great emphasis on consulting with council tax payers and representative groups to help inform the budget setting process and I look forward to a robust debate in the coming weeks.
"We already know government grant shortfalls and the senseless use of 13-year-old census data will mean money will be tight while demand for services continues to exceed our resources.
Departments will need to do their bit by continuing to make efficiency savings to help us bring in as low a council tax rise as possible whilst protecting essential services, particularly in social care and education. Over the last three years we've made efficiency improvements of £12 million but we have lost £29 million in government grant.
"It's clear the Government expects councils to deliver more and better services while providing fewer resources. We will be consulting on possible council tax rises of 3 per cent, 5 per cent and 7 per cent but it is far too soon to predict what the final figure will be."
The Audit Commission has signalled its commitment to make value for money a key theme of the Comprehensive Performance Assessments for 2005. The county council already has an 'excellent' rating and will be looking to maintain that position.
Mr Thornber added: "This new emphasis on value for money will formalise what already happens when we make decisions on spending council taxpayers' money. Broad cost comparisons, reference to our spending priorities and an examination of value for money will now be included on papers presented to Cabinet members at their meetings.