European women had the largest increase in average salaries in 2017, whereas increases in average salaries for Maori, Pacific and Asian men all lagged behind those for European men, the report said.
2017 Public Service Workforce Data report includes data on New Zealand's 348,000 public sector employees, who range from doctors, nurses, teachers and police through to local government officials and parliamentary staff.
As at June 30, the average (mean) salary in the sector was $81,610 for men and $71,376 for women, up 1.6 per cent for men in a year and up 2.8 per cent for women.
The report attributes some of the improvement to an increase in female senior leaders and decreasing gender pay differences in some groups including social, health and education workers.
In the top three tiers of senior management, 47.9 per cent of employees are women, up from 38.4 per cent in 2008.
"If current trends continue, the public service will reach 50 per cent female representation in senior leadership by around 2020," the report said.
But the report found the gender pay gap varies drastically between departments. In the Ministry of Defence women are paid 37.8 per cent less than men, on average, while in the Ministry for Women, female staff are paid an average of 5.6 per cent more than men.
The report says pay gaps across department are usually down to gender imbalance within the workplace - such as women being more likely to work in low-paid occupations.
The State Services Commission reports the pay gap using the mean wage, although Statistics NZ recommend using median pay - which is a better reflection of the average employee's wage.
In 2017, the gender pay gap using median pay was 9.7 per cent, down from 11.1 per cent in 2016.
DIVERSITY IMPROVING BUT ETHNIC PAY GAP GETTING WORSE
Ethnic diversity is on the up in the public sector, the report found, with consistently high Maori representation and an increase in Asian and Pacific Island staff, especially in Auckland.
The public service is ageing, but "Pacific and Asian employees have a younger age profile than European staff and this may contribute to greater diversity in the Public Service in coming years".
However, Maori, Pacific and Asian ethnicities are still under-represented in the top three tiers of public service management.
Maori, Pacific and Asian public servants are overrepresented in occupation groups that are lower paid, the report said.
The commission is working with public sector chief executives to find out why these pay gaps exist and address them.
In 2017, the average annual salary was $75,416, an increase of 2.3 per cent from the previous year. However the median salary was $64,343, up 2 per cent on the previous year. The latter is less affected by those employees with very high salaries.