Daniel Mookhey will continue selling his second state budget on Wednesday with an address to the Committee for Economic Development of Australia.
New housing and some energy bill relief headlined a suite of measures restricting government spending to "must-haves".
Daniel Hunter, head of the state's peak business organisation Business NSW, credited the Labor government for avoiding inflation-surging measures - in light of increased revenue.
"However, the decision to grant significant public service wage increases - the largest in more than a decade - has also hit the budget bottom line," he said.
Revenue gains have been spent on union wage deals, Opposition Leader Mark Speakman says. (Dean Lewins/AAP PHOTOS)
Wages for the state's 400,000 public sector workers are forecast to rise by 10.5 per cent over three years including super.
It will cost at least $3.6 billion - incidentally the same amount as the coming year's budget deficit.
But the bill could rise far higher, with several unions calling for more.
In light of recent teacher and nurse wage deals, firefighters want 20 per cent over three years while police are sidling up for 25 per cent over four years.
"We will not settle for anything less because that is what you deserve," the police union has told members.
The opposition, which placed a ceiling on public sector wages when in government, said expenditure outside wage rises had fallen.
"This government promised ... that union wage deals wouldn't cost a cent - it would all be funded from productivity offsets," Opposition Leader Mark Speakman said.
"Instead, we are seeing the revenue gains that this government has made in the last 12 months spent on union wage deals, rather than on hospitals, schools and other infrastructure."
Unions NSW Mark Morey suggested the coalition's wage cap had created "deep worker shortages" and going back would mean classrooms without teachers and hospitals without health workers.
"That was the experience of the last decade and that is what we will return to if the Liberals and Nationals achieve their wish," he said.
The NSW treasurer said wage growth would be funded through an existing essential service fund and productivity gains.
Mr Mookhey pointed to lower teacher vacancies and record nurse and police intakes as proof wage growth was an antidote to worker shortages.
"The last thing we should be doing is going back to a policy of wage freezes ... which will simply see more of our essential workers up and leave," he said.
9°C