Hundreds and thousands of workers from health workers and paramedics to teachers and police are set to benefit after an industrial relations reform bill passed parliament on Friday.
The legislation will overhaul the state's Industrial Relations Commission, removing the power to cap wages, and reinstates a specific court to deal with work health and safety breaches.
Voluntary interest-based bargaining will mean agencies and unions will be required to sit down together to find mutually agreed improvements to pay and conditions.
A re-established Industrial Court will preside over workplace health and safety matters and underpayments.
Treasurer Daniel Mookhey said the changes will signal the start of genuine, meaningful public sector bargaining.
"It has been a long, difficult 12 and a half years for public sector and essential workers in NSW – but that is now at an end," he said in a statement on Friday.
"The wages cap is gone and workers will be able to negotiate for a fair and decent wage increase."
Industrial Relations Minister Sophie Cotsis said the former government's wages cap and wage suppression "created a recruitment and retention crisis in public services".
"This is the beginning of reversing that damage," she said.
The powers have been rushed through the year's final sitting week to ensure the changes are bedded down before workplace agreements, including for health workers, are up for negotiation in 2024.
Shadow Treasurer Damien Tudehope said the changes would damage the state's budget, noting the government rejected an amendment that would have required wage rises be fully offset by productivity improvements to maintain budget neutrality.
"Labor is handing over control of half of the budget to the unions, who will blow any chances of returning to surplus," he said.
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