Labor is on track to spend at least $12 billion more on public servant wages than it forecast in its first budget, but Finance Minister Katy Gallagher says the government has clawed back $4 billion by cutting down on outsourcing.

The Australian Financial Review revealed on Wednesday the Albanese government had put aside almost no money for rising public sector wages despite already agreeing to a pay deal for 185,000 public servants, potentially exposing taxpayers to a $7.4 billion budget blowout.