The country's 44,000 public servants face a virtual five-year pay freeze, despite the recession being officially over.
Finance Minister Bill English said yesterday that the Government was asking departments and state entities "to think hard about how to live with little or no extra funding for those three to five years" as the Government faced rising debt.
His comments came hours after growth figures showed the economy expanded by 0.1 per cent in the three months to the end of June, ending a recession that started in January last year.
Public Service Association national secretary Brenda Pilott said Mr English's warning echoed opening bids in wage negotiations under way for 1800 workers in the Justice Ministry and 3000 at Inland Revenue. "The starting point is that there's no money for wage movement right across the public sector."
Some workers would get more, such as those on collective agreements that had pay rises in place or those who won promotion. She said Mr English's role seemed to be to damp down expectations, but public servants were realistic.
However, there was a risk that public services would be run down to the point where the level of services could not be maintained. There were already reports from her members of longer hours, and caseloads were creeping up.
Mr English said there would be some new money for the state sector, but with Budget deficits of more than $10 billion and surpluses a decade away, it would be quite limited.
"We're borrowing $400 million a week at the moment to maintain public services and entitlements. We want to keep providing frontline services to the public, so the public service is going to have to be as innovative as everyone else ... to deal with the fact there isn't much new money coming in."
There were more than 600 websites across the state sector and numerous toll-free telephone lines where duplication could be reduced to cut costs.
The growth figures showed that "for the economy, the worst is behind us", he said. But unemployment would keep rising and New Zealand was still heavily indebted.
Mr English said the Government needed to create an environment where jobs were protected and more sustainable jobs created.
Earlier, in a generally gloomy speech to the Institute of Public Administration in Wellington yesterday, Mr English said New Zealand would come out of the recession in better shape than most other countries.
But its impact would continue to be felt on the Government's books for 30 years.
Prime Minister John Key, after a meeting with former prime minister Helen Clark in New York, said he expected unemployment levels to be much lower than previously predicted.
"We have now got the Reserve Bank believing unemployment will peak at 6.8 per cent. That's a lot lower than people thought."
BY THE NUMBERS
Total public service staff: 43,569.
Number in Wellington: 18,698.
Biggest category: Inspectors and regulatory officers: 9011.
Social Development: 9327
Median salary: $51,000
Average salary: $59,532
Figures are based on the latest data, from 2008.
- © Fairfax NZ News
How important is NZ's anti-nuclear policy to you?Related story: It's all good, just don't mention the nukes