Chief Minister Natasha Fyles has scrapped the government’s public service wage freeze policy, offering public servants a “compounding pay rise” of two per cent, claiming the “economic situation has changed significantly”.

Ms Fyles made the announcement in a statement issued this morning that will see the Labor Government backflip on its wage freeze policy that had already been accepted by members of the CPSU but had been the biggest point of contention for ongoing EBA negotiations with teachers, nurses, police, fire fighters, corrections officers and other workers.

“The government will use a 2 per cent compounding pay increase as a base for negotiations as well as working through other issues of importance to our hard working public servants,” Ms Fyles said in the surprise statement.

“Public servants covered by existing lump sum based-agreements will also be offered the compounding percentage pay agreement for future years, government and unions will work on the transition.”

Ms Fyles said the government was working to reduce cost of living pressures for all Territorians and that she would remain “focused on returning the budget to surplus” despite scrapping the public service pay freeze.

“The economic situation has changed significantly, with interest rate rises and Australia experiencing higher than normal inflation,” she said.

“The Northern Territory Government is working to reduce the cost of living for Territorians through a number of incentives and schemes.

“The Territory Government remains focused on returning the budget to surplus in the medium term.”

The pay freeze policy was brought in by former chief minister Michael Gunner who said the policy – which saw lump sum annual payments of $1000 instead of pay rises – would save the Northern Territory $424 million over four years.

Ms Fyles said the current Budget forecasts a net operating deficit of $253 million this financial year, but said that was an improvement of $283 million “compared to the position forecasted in last year’s Budget and in aggregate is forecast to improve by nearly $1.4 billion over the four years”.

Unions NT said they welcomed Ms Fyles’ scrapping of the pay freeze.

“The Chief Minister has listened to the union members and agreed that public sector workers deserve better,” said Unions NT secretary Erina Early in a statement minutes after the announcement.

“This is a great day for public sector union workers who have campaigned hard and taken their anger to the streets and multiple protected actions, etc.

“We have the won the battle to lose the freeze and now our members can now properly negotiate their conditions of employment”.

Opposition CLP Leader Lia Finocchiaro said Ms Fyles’ backflip on the wages policy was “embarrassing” and done because the government had lost the trust of its public servants after they were made “the scapegoat for Labor’s economic mismanagement”.

“Yesterday, the government was freezing pay – today the government is saying the ‘economic situation has changed significantly’; the only thing that’s changed is the public service trust in the government finally hit zero,” Ms Finocchiaro said.

“How many teachers have already decided to leave the Northern Territory?

“Now they’ve made the humiliating backflip, we call on the government to negotiate in good faith instead of throwing public servants ‘take it or leave it’ offers.”