After a year-long industrial campaign, the federal government has relaxed its tight limits on public service pay rises.
Agencies will now be able to offer wage increases of up to two per cent a year to staff. Former employment minister Eric Abetz had imposed a 1.5 per cent cap.
The breakthrough follows strikes at government offices and airports across the country, and "peace talks" between new public service minister Michaelia Cash and unionists earlier this month.
However, Senator Cash offered no prospect of back pay for the almost 150,000 Australian Public Service staff who last received a pay rise more than two years ago.
Inflation during the year to June was 1.5 per cent, though government forecasts suggest prices will generally rise by 2.5 per cent a year in the medium and long term.
Across the private sector in the year to June, wages rose by an average of 2.2 per cent.
Senator Cash said the government had increased the APS pay-rise cap to help agencies negotiate wage agreements "quickly and efficiently".
But other elements of the Coalition's tough policy would remain in place, and the minister criticised the union movement's obstinacy.
"The Community and Public Sector Union and others have run a misleading campaign against the government's bargaining policy, but have not put forward any solutions that would advance agreement-making," she said in a statement on Tuesday night.
"Instead, the CPSU and others have stuck to their unaffordable and unworkable claims."
Most public servants who have voted on pay offers have strongly rejected any proposed increases worth 1.5 per cent a year or less, though a handful of agencies, including the Treasury, sealed wage deals earlier this year.
Under Senator Abetz's bargaining policy, most employers had struggled to develop proposals that were acceptable to staff.
Senior executives negotiating on behalf of agencies had complained privately about a lack of flexibility in the rules, which required that any proposed pay rises be funded through administrative savings or "cashing out" benefits, such as asking staff to work longer hours.
Senator Cash said the revised framework would give agency heads more flexibility to strike deals, though the costs of any wage rises would still need to be met within existing budgets.
"The Australian public expects the public sector to be flexible and responsive to changing demands," she said.
"These reforms will enable employees to receive modest wage increases quickly and still see taxpayers benefit from productivity gains."
The policy switch mirrors former prime minister Tony Abbott's backdown on military pay earlier this year, after he had copped a six-month backlash from the defence community.
Mr Abbott agreed in March to increase military personnel's pay by 2 per cent a year after he had argued that anything beyond 1.5 per cent was unaffordable.
Earlier this month, neither Senator Cash nor unions commented publicly on the details of their "peace talks", though CPSU national secretary Nadine Flood said at the time she was pleased the new minister was open to discussion.
"We are hoping the government is able to consider the concerns of public sector employees and agencies and make sensible changes to their existing policy," Ms Flood said.
"But I guess, after 18 months, it's positive that they're willing to talk."