Public service chief executives will not get a pay rise this year and the 45,000 people they employ could be in line for similar treatment.
The harsh reality follows a call from Prime Minister John Key for a freeze on MPs' salaries.
Wellington City Council has also confirmed staff cuts and possible layoffs.
State Services Commissioner Iain Rennie told The Dominion Post that given the state of the economy, the 35 state sector chief executives were being told not to bank on a bigger salary.
Some chief executives had already asked that their own salaries be frozen, knowing they would have tough calls to make this year.
"A number of chief executives will be making restraint-type decisions for their own people," Mr Rennie said.
While he had no authority over what his chief executives paid their staff, keeping wage rises down would make it more likely that current staff levels could be retained.
Public Service Association national secretary Brenda Pilott warned if civil servants were denied pay increases, there could be an exodus from the sector.
"We understand times are tough, but we expect to gather round the bargaining table in good faith, not have the decision already made before we sit down."
Local government employees also face tough times.
Wellington City Council revealed yesterday that it was not replacing some staff and layoffs could follow as it tries to slash $50 million during the next decade.
Acting chief executive Derek Fry said the move was a direct response to the economic climate and to keep rates increases affordable.
The council annual report says it employs 1558 staff, with a wage bill of $72.4 million. Mr Fry would not say how many jobs could be lost.
A self-imposed wage freeze had already been agreed to and implemented by the council's 10 top management staff.
The annual MPs' pay increase, decided by the Remuneration Authority in November, resulted in Prime Minister John Key's salary jumping from $375,000 to $393,000, a rise of 4.8 per cent.
Mr Key's call came just hours after United States President Barack Obama moved to freeze the pay of top White House staff.
Mr Key wrote to authority chairman David Oughton yesterday, urging restraint when it next considered all salaries under its jurisdiction. They include MPs, judges, local government politicians and government and statutory appointments.
Mr Oughton said he had not yet received the letter: "Our view is that we exercise restraint in all our deliberations, and we will take into account the views he has put to us."
Labour leader Phil Goff agreed with Mr Key's call, but said the best way to ensure restraint was to change the law to make the state of the economy a specific criterion for the authority.
Mr Key backed off an immediate law change, and hoped the authority an independent body acted on his letter.
- © Fairfax NZ News
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