But failing to reform the existing scheme would leave local councils with huge clean-up bills and shrinking landfill sites, and would ultimately push costs back on to ratepayers.
Representatives from NSW local councils issued the warnings at the fifth hearing of the parliamentary inquiry into Australia's tyre industry held in Canberra on Wednesday.
The probe is investigating the state of the tyre industry, including illegal dumping and storage, and opportunities for recycling to address public health risks.
An existing voluntary stewardship scheme, introduced in 2014, is funded by levies from tyre and auto companies and has invested $11 million in 76 projects researching the use of recycled tyres.
But several council representatives before the inquiry argued the scheme needed to become compulsory to make an impact and address the cost of removing and recycling dumped tyres.
Councils were paying $22 to deal with each dumped tyre, which would ultimately be paid for by the community, Southern Sydney Regional Organisation of Councils chief executive Helen Sloan said.
''Voluntary schemes can't achieve the market share necessary to deliver change at scale and have no ability to enforce compliance,'' she said.
''The tyre stewardship scheme should be mandatory to eliminate free riders, extend its reach as far as possible, and maximise the recovery of precious resources.''
The group of Sydney councils had conducted a trial with Tyre Stewardship Australia to use recycled tyre rubber to build roads, which had proven successful and could be replicated if the cost was addressed, she said.
''Nationally, that market could expand to 150,000 tonnes of used tyres in road networks annually if all councils were able to use recycled tyres for roads and other payments,'' she said.
''This would have environmental benefits too as the tyres would otherwise end up in landfills or illegally dumped.''
Using recycled vehicle tyres in asphalt, known as crumb rubber, had proven to be hard-wearing, Lake Macquarie City Council waste strategy coordinator Hal Dobbins said, but it also cost more to deploy.
''Using crumb rubber in heavy-duty asphalt applications, (there's) about a 20 per cent premium for that,'' he said.
''We can justify doing that in certain high-stress pavement locations but if we were really to try to absorb a lot more of this crumb rubber across just the broader resurfacing programs, it's quite hard to justify.''
The federal government should consider product subsidies for its use under a recycling scheme to build confidence in the product, Mr Dobbins said.
The committee will hear from local councils from Queensland, South Australia and Western Australia on June 3.
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