State sector workers cannot expect pay increases in the future unless they are matched by productivity gains, Finance Minister Bill English said today.

Mr English told MPs that anyone whose pay came from the taxpayer should realise the Government faced 10 years of deficits and the public sector had to provide "smarter, better" services with limited funding.

The Government would honour contracts settled by its predecessor in pay rounds prior to the election.

These included senior doctors who received a 4.25 per cent pay increase at the end of June and nurses who received a 4 per cent increase in March.

"No one should take these pay increases as an indication of settlements in the near future," Mr English said.

"That kind of pay rise is no longer sustainable."

Most in the private sector were receiving nothing or little extra in current pay rounds, Mr English said.

"Many New Zealanders see state sector workers as having relatively secure jobs and would be concerned if the representatives of state sector workers were out of touch with what is going on in the wider community."

Mr English said the public sector had been used to large on-going increases, but next year's budget allowed for only a $1.1 billion increase in total spending across the entire budget.

"We have given the whole public sector 12 months that they need to be looking at a much wider range of tools to be able to secure productivity gains and meet public expectation without large and reckless spending increases."

Any pay increases in the public sector would have to be matched by productivity gains, which had been at "appalling" levels in recent years.

Asked if he was telling primary school teachers and nurses that they could expect no pay increases in 2010, when their current contracts expired, Mr English indicated they could not expect increases.

"We are signalling very clearly there will be restrained funding," he said.

"Those professional groups whose dedication we admire and services we need have the opportunity to think about better ways of working, but the days of going to ministers and getting large increases at the expense of the taxpayer without any productivity gains are over."

- NZPA