The Australian War Memorial will have to shed jobs even as it stages commemorations for the centenary of Anzac, if the federal government does not relent on squeezing the iconic cultural institution with a higher efficiency dividend.

Director Brendan Nelson broke the news to staff at a briefing in which he said the memorial would have to cut back services in the face of losing $3 million in funding over the next three years.

It is understood Dr Nelson is shocked by the cuts soon after the Department of Finance concluded the memorial was underfunded, and subsequently boosted funding.

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The memorial was one of the cultural institutions exempted from a previous temporary increase in the efficiency dividend but the pain from the latest rise is to be shared between all agencies in the Veterans' Affairs portfolio.

 

On Tuesday night the Finance Department confirmed the War Memorial was one of the cultural institutions exempted from the one-off rise in the efficiency dividend implemented in July 2012.

An official at the briefing said Dr Nelson told staff he and memorial chairman Rear Admiral Ken Doolan had asked Veterans' Affairs Minister Michael Ronaldson and other ministers to reconsider the issue.

It is believed the appeal to the government for an exemption cites the memorial's special status.

If Dr Nelson's plea is unsuccessful, he will have to cut 19 full-time-equivalent positions, instruct ground staff to restrict work, and pare back security, audio-visual support and staff development.

The Coalition previously decided it would pocket more than $10 billion in Labor savings which it rejected when in opposition.

An increase in the public service efficiency dividend to 2.5 per cent will reap $1.8 billion.

Dr Nelson told Senate estimates last month the memorial had been increasing staff in preparation for the centenary of the First World War. ''… as we adjust to the application of the efficiency dividend over the forward estimates, I cannot rule out there being voluntary redundancies.''

After the Finance Department's investigation into the memorial, the former Labor government increased funding by $8.3 million a year. Dr Nelson was unavailable but his office provided written responses to queries late on Tuesday.

''The increased efficiency dividend will apply to the memorial's 2014-15 budget, which has not yet been developed. However, applying current budget principles and using an average employee cost … analysis suggests the organisation may need to reduce around 19 positions over a three-year period,'' he said. ''All Commonwealth agencies were advised of the temporary increase to the efficiency dividend to 2.25 per cent in Estimates Memorandum 2013/29 issued by the Department of Finance on 1 October 2013. The increase applies to annual appropriations from 2014-15 to 2016-17 before reverting back to 1 per cent in 2017-18. ''The memorial was exempt from an additional 2.5 per cent efficiency dividend applied to agencies in December 2011 (as disclosed in Estimates Memorandum 2011/44). ''The budget rules now provide for some flexibility for the ED [efficiency dividend] to be applied to overall portfolio budgets to alleviate budget pressure for small agencies, however the impact of the recent ED increase was shared proportionately between all agencies in the Veterans' Affairs portfolio.''