In his second major pre-Budget speech Finance Minister Grant Robertson has defended public service pay measures and says next week's Budget will support the economy while being cautious about debt.

Robertson says the government would not be able to fulfil all of its promises in just one Budget.

While the country's better than expected economic recovery meant there was more space in the government's operating and capital allowances, the outlook remained highly uncertain and not all the government's manifesto commitments would be able to be funded this time round.

The Budget will be a 'Covid' Budget, in the sense of dealing with the ongoing effects of the pandemic.

"But as well as being a Covid Budget, Budget 2021 will also be a recovery and wellbeing budget," Robertson says at a BNZ-Deloitte event in Auckland.

Robertson says there were enormous issues the country needed to face up to, like housing affordability, climate change, child well-being and productivity not being as good as it should have been, and it was important not to romanticise the pre-Covid economy.

"Our call is that we do need to keep investing ... but we are balancing that against the clear news that we have taken on enormous levels of debt,” he says.

'We in the middle of the decade be in a position where we can start reducing that debt down, but up until that point we need to keep it at the levels it's at to sustain the services we need and to support the economy."

The government would need to continue providing support to the economy for some time to come, and where there was increased spending, it would be directed toward where the need is greatest, he says.

In that context, he says, it was important to note the guidance by the Public Service Commission on the next round of public sector pay negotiations focused on those on $60,000 a year or less, and was not a pay freeze.

"The guidance breaks down three categories for public sector pay, 'lift' (those at $60,000 or below), 'adjust' (those between $60 and $100,000) and 'hold' (those above $100,000).

"Pay for public servants such as teachers, nurses and police officers will continue to increase as they move through the pay bands we have previously agreed, pay equity discussions continue and there is still a collective bargaining negotiation to go through."

The government has faced a backlash over last week's announcement, with unions for healthcare workers, teachers and police, with the move being called an effective pay cut with inflation and rising housing and rental costs.

The finance minister reiterated the government would not implement austerity measures in order to try to reduce levels of debt before the recovery is secure.

"Our better than expected economic recovery does provide us with more options. There will be a careful balance here too,” he says.

"There is a bit more space in our operating and capital allowances to support the recovery in line with the approach that I have outlined today, focused on the areas of where we can accelerate progress and in tackling our long term challenges.

"At the same time there is some more scope to keep a lid on debt and look towards a faster reduction in that debt once the recovery is secure.

Robertson has set out the wellbeing objectives for Budget 2021:

• Securing a Just Transition as New Zealand shifts to a low-emissions economy
• Lifting productivity and enabling all New Zealanders to benefit from the Future of Work
• Lifting Māori and Pacific incomes, skills and opportunities,
• Reducing child poverty and improving child wellbeing, and
• Supporting Physical and Mental Wellbeing for all New Zealanders and keeping Covid-19 out of our communities.

Details of the Budget will be revealed on 20 May.

• RNZ