Newfoundland and Labrador Premier Kathy Dunderdale is warning civil servants to temper their hopes for a hefty raise once their contracts expire.

The province agreed to increase pay rates by about 21.5 per cent over a four-year period. The template for the contract included eight per cent in the first year alone.

But as the contracts come due soon, Dunderdale the raises in the next contract will have to be smaller.

"I think they have to expect a more modest increase," Dunderdale told CBC News in a year-end interview to be broadcast later this week on On Point with David Cochrane.

"Our spending at the rate that we've been doing over the last eight years — and it has been very necessary for a number of very good reasons to do that — is not sustainable in the long run," Dunderdale said.

The statement is in line with a more fiscally restrained tone that Dunderdale and the governing Progressive Conservatives took during the campaign leading to the October general election.

War chest in place

Meanwhile, the province's largest public sector union said it will head into contract talks with a well-stocked war chest.

NAPE president Carol Furlong said the union has paid off all the debts it incurred during the month-long strike in 2004, and has a defence fund of $14 million.

But Furlong said the fund is not a sign that the union is spoiling for a fight.

"We have at our disposal, you know, financial means, if that were to be necessary, but that's not where we're coming from, let me assure you," Furlong told CBC News.

"But should the need arise, well, we have that in our back pocket. But obviously that's not going to be our very first choice of weapons."

As for wage expectations, Furlong said the government will have to offer increases that are substantial enough to compete for skilled workers.

CUPE regional vice-president Wayne Lucas declined to comment on Dunderdale's remarks, saying the union does not bargain in public.

The contracts governing many civil servants expire in March.