In the wake of the federal government's relaxation of its tough bargaining policy this month, the Tax Office has indicated it will withdraw its unpopular 1.5 per cent pay position and put forward a new proposal.

Second Commissioner of Taxation Geoff Leeper was not making any promises on Wednesday when he told all staff at the agency that the offer of 4.5 per cent, which had not yet been put to the vote, was history.

"In light of last week's announcement by the Government, we have decided to withdraw the current proposed pay offer of 4.5 cent (2.5 per cent, 1 per cent, 1 per cent)," Mr Leeper wrote.

"This means we will not yet conduct a vote and instead re-assess the pay offer and continue the bargaining process."

Foreign Affairs and Trade was the first department out of the gate this week and improving its 4.5 per cent offer, which it had previously said was the best in the Australian Public Service, to 6 per cent over three years.

But the Australian Services Union, representing ATO public servants, says the dispute remains more about working condition than entitlements.

"Increasing the offer to 6 per cent will not be acceptable if the ATO remains committed to taking away all our rights at work," union official Jeff Lapidos said.