Nova Scotia Premier Stephen McNeil and the largest public sector union in the province both claimed victory Thursday after an arbitration panel awarded a seven per cent wage increase over six years for 7,000 civil servants.

The panel upheld the government's four-year wage package with a three per cent increase, but extended the deal for two more years with a four per cent increase. The contract runs from 2015 to 2021.

Without the extension, the arbitrator said, contract negotiations would have begun within months of the award.

McNeil called it is a fair deal that his government can afford.

"Let's not kid ourselves: without the challenges that we faced, without having these tough conversations, we would have had a very different scenario in my view," he told reporters Thursday. 

"This was important. It's fair, it's balanced, it respects all taxpayers. At the same time, it respects those who work on behalf of all taxpayers."

Stephen McNeil

Premier Stephen McNeil said it is a fair deal that his government can afford. (CBC)

The Nova Scotia Government and General Employees Union (NSGEU) said the decision "breaks" Bill 148, the government law that capped wages in the public sector. 

Union president Jason MacLean said the decision proves government cannot impose wages on its employees.

"It's not necessarily in the government's hands. I think that was proven today," he told CBC News. "People can't be dictated to; processes need to work themselves out."

The NSGEU is challenging Bill 148 in court.

"It's my sincere hope that the union takes Bill 148 to the courts," said McNeil. "I believe it is very constitutional, and I believe the ruling today reflects that."

The arbitration award also gives employees the right to an immediate payout of a retirement bonus accrued up to 2015. The bonus, also known as the public service award, can also be claimed upon retirement.

The McNeil government has ended the bonus for new employees.