The NSW government will pursue a controversial 12-month pay freeze for public servants through the Industrial Relations Commission after the NSW Upper House reversed the policy.
MPs voted on Tuesday to disallow the pay pause, introduced last week in response to the economic damage wrought by COVID-19.
The Berejiklian Government had argued the freeze would guarantee jobs for public servants and free up funds for job-creating projects to support others who have lost work.
But the wages policy has been opposed by unions and frontline workers including paramedics, nurses, police officers and teachers.
Labor MP Adam Searle, who successfully introduced the motion to disallow the regulation, said it was an "act of economic vandalism" that would cut the purchasing power of 400,000 workers in the state.
But Finance Minister Damien Tudehope criticised the disallowance motion, calling it "a kick in the guts and a slap in the face" to those who had lost their jobs due to COVID-19.
The pay freeze included a one-year guarantee of no forced redundancies for workers who weren't senior executives, and a proposed one-off $1000 stimulus payment.
The NSW government will now pursue the measure through the Industrial Relations Commission, a statement from Treasurer Dominic Perrottet said on Tuesday.
Premier Gladys Berejiklian previously warned the $1000 payment would be off the table if that occurred, as well as the promise of no forced redundancies.
She said public sector jobs were at risk if Labor and crossbenchers blocked the pay freeze.
"At a time when there are hundreds of thousands of people out of work, the creation of new jobs must be our top priority, not giving those with job security a pay rise," Mr Perrottet said.
"We're in the grip of a once-in-100-year crisis and it is simply not appropriate to pretend this is a year like any other."
Conciliation will start in the commission on Thursday.
Opposition leader Jodi McKay said Labor would fight the state government "every step of the way".
"Our nurses, cleaners, police and firefighters are heroes. They deserve a medal, not a pay cut," Ms McKay said in a statement on Tuesday.
Australian Associated Press