Union fights Vic Labor government pay cap

The Victorian Labor government's cap on public sector pay rises will hurt the state's economy, a new report warns.

A research paper by the Centre for Future Work, commissioned by the Community and Public Sector Union, found the wages cap and further departmental cuts would undermine wage growth recovery in Victoria's broader labour market.

"What's more, these measures will damage consumer spending, exert a chilling impact on private sector wage settlements, and do particular damage to regional communities which depend especially strongly on public sector jobs and incomes," the centre's chief economist Jim Stanford said.

The paper found the Andrews government's cap risked suppressing wages by $3 billion over four years and government activity was key in driving Victoria's economic and job-creation performance.

"Strong investment in infrastructure and services is a key part of the economic model that has made this state the envy of the country," CPSU secretary Karen Batt said.

"It is alarming that the Andrews Government wants to replace this virtuous circle of investment and expansion with a vicious cycle of austerity and contraction."

Public transport workers, police and metropolitan firefighters are among the public servants to have their enterprise agreements up for negotiation in the final months of this year.

Their negotiations come at the same time the states politicians were handed a pay rise by a newly-formed independent tribunal.

Acting Premier James Merlino said the government would continue to "negotiate in good faith" with the unions to reach "appropriate EBAs".

"We won't go to war with our ambulance staff, we won't go to war with our teachers or our nurses," he told reporters on Tuesday.

"Wages policies aren't new, we have always had a wages policy that reflects the financial constraints of the time."