Dungog Shire Action Initiative chair Sarah U'Brien said Ms McKay's comments, made at a Wednesday press conference, were "so demoralising" for residents.

"We couldn't believe that she said we had to show leadership," Ms U'Brien said.

"We've had Tillegra [dam] hanging over us because the government she's part of came up with it and then we hear that."

Ms U'Brien said there were "obvious things" such as improving the state of the roads that the government could do to help.

"It would be an absolute disgrace to let this town flounder any longer," Ms U'Brien said.

Ms McKay has arranged to meet Ms U'Brien but said Dungog would have to apply for road funding along with other councils. She stood by her original comments about Dungog's need for leadership.

"My comments [at the Wednesday press conference] were very much directed at the council," she said.

"'We are working on a range of issues but what we need from them [the council] is the direction they want to take."

Dungog Shire Council mayor Harold Johnston said the direction the shire wanted to take was clear.

He said the town had been on the front foot since the dam was scrapped late last year, disputing Ms McKay's assertion the shire needed leadership.

"I defy you to find a more focused community or council anywhere," he said.