The NSW Upper House has reversed the state government's controversial 12-month pay freeze for public servants as the state government vows to pursue the policy through the Industrial Relations Commission.
MPs voted on Tuesday to disallow the pay pause which was 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.
"Their spending underpins so many city, regional and rural economies. In some towns, public sector wages are the only wages being pumped into local shops," Mr Searle told parliament on Tuesday.
He said the freeze would not create jobs but instead result in more job losses.
"Cutting the pay of workers punishes the economy when we can least afford it," he said.
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.
"All it does is give more money to those with the security of a guaranteed job and a steady pay cheque while half a million go with nothing," Mr Tudehope said.
The pay pause 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 freeze through the Industrial Relations Commission.
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," Treasurer Dominic Perrottet said in a statement on Thursday evening.
"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.
Unions NSW secretary Mark Morey said the Upper House has "helped prevent the NSW government turning a recession into a depression".
"The NSW government always looks to its own workforce for savings. But today as we confront the worst economic crisis in a generation, economic sanity has prevailed," Mr Morey said in a statement on Thursday.
"Teachers, nurses, hospital cleaners, police, prison officers and other public sector workers earn modest incomes and they spend most of what they earn.
"Cutting their incomes in a downturn is economic lunacy."
Australian Associated Press