National government departments and provinces will be instructed to immediately cut costs drastically to fund the pay increases demanded by public-service strikers.

Government spokesman Themba Maseko said yesterday that the government did not have the extra R6.5-billion that would be needed to pay public servants if they accepted the latest offer.

"It's not going to be business as usual for any government department, provinces, municipalities and national departments because we have to go out and find R6.5-billion," he said.

"There will be clear instructions given to government departments about what steps should be taken."

Maseko told journalists the latest government offer of a 7.5 % increase and an R800 housing allowance would add another R1.5-billion to the R5-billion that had already been set aside for salary increases this year.

"Simply put, there is no money available. The resources to cover the draft agreement proposal will have to come from reducing expenditure in other areas," he said.

"It is a complete misunderstanding to suggest that our willingness to accept the draft agreement is proof that there is money lying somewhere in the fiscus."

Maseko said the Cabinet would order directors-general, heads of departments and municipal managers to identify areas where savings could be made and to implement the measures urgently.

Government salaries now took up 40% of all tax income.

Increasing them further would have a negative impact on the delivery of basic services to South Africans, Maseko said.

Government departments and provinces would be in a pinch to provide proper services as all vacant posts would be frozen, spending on goods and services substantially cut and officials would have to curtail travelling costs so that public servants could get more money.

"Government has a mandate to deliver a variety of services to communities, including building more houses, roads, and clinics, employing more teachers and nurses and supplying books and other learner support materials," he said.

The government acknowledged the genuine need to improve the salaries of state employees, but this had to be balanced with what the state can afford.

Maseko said senior government managers from director-level upwards were not part of the bargaining process, and that their salary increases would be determined by the Department of Public Service and Administration.

National Treasury spokesman Jabulani Sikhakhani said the treasury was busy working out the exact cost to the state of the pay offer and determining where the money would come from.

Finance Minister Pravin Gordhan is expected to brief the media on Monday on the issue.