Cabinet yesterday signed off on pushing for the one-year ``pay pause'', which would be followed by only 2 per cent yearly increases over the forward estimates for the state service's 30,000 workers.

Mr Gutwein said the move would save $50 million a year and prevent 500 public sector job losses.

``This will assist us to put the budget onto a sustainable pathway and a transition to once again returning the budget to surplus,'' Mr Gutwein said.

``The very clear choice for unions is whether or not they want to work with us to save 500 of their members' jobs.''

If legislation underpinning the pay pause passes both houses of State Parliament, the measure could take effect in October.

Labor leader Bryan Green said the Liberals knew the position of the state's finances before the election but pledged $500 million in extravagant spending promises regardless.

Mr Green said the government's proposal was blackmail.

``What the Liberals are going to be saying to them is: Look, take a wage freeze and some of your fellow work colleagues will not have to lose their jobs,'' Mr Green said.

``They got themselves into the position they're in and it shouldn't be public servants who suffer as a result.''

The Community and Public Sector Union said the move was a fundamental attack on collective bargaining in Tasmania.

``It is thoroughly offensive and a total abuse of power for this government to override legally binding instruments through way of legislation,'' CPSU acting secretary Mat Johnston said.

``No other employer in this state or in this country could take the actions they've taken today.''

Mr Johnston said public servants had been stabbed in the back after entering into negotiations with their employer in good faith.

``If you go to the table and negotiate, bargain, make concessions, shake hands and walk away with a legally-binding deal, that deal has to be honoured,'' he said.

``This government has shown itself to be untrustworthy.''

Mr Johnston did not rule out industrial action in addition to rallies over the prospect of pay freezes.

The Australian Council of Trade Unions has slammed the state government's plan.

The union said the proposed legislation was a wage cut disguised as a pay pause in an ''ideological and misguided attack''.

ACTU officials said the move was an abuse of power and authority and undermined legitimate industrial relations.

The union said it would work to defend the bargaining right of Tasmania's public sector workers.