Massive public sector job cuts to cost more than $1 billion

And with Treasurer Joe Hockey promising more cost-cutting, the price could climb even higher.

Tuesday's Mid-Year Economic and Fiscal Outlook (MYEFO) contained a commitment to funding golden handshakes for up to 14,473 bureaucrats who Mr Hockey says will lose their jobs because of budget measures taken by his Labor predecessors.

The MYEFO data also suggests the broader Commonwealth government workforce, which includes military personnel and other federal workers as well as public servants, could shrink by up to 17,000 in three years.

But the government paid out $261 million to departing public sector workers in the 2012-13 financial year, and it will have to exceed that figure in each of the four forward estimates years to fund the cuts.

The MYEFO documents say the Finance Department will pay for redundancies in ''selected agencies'' in 2013-14 and 2015-16 but the full figures for new money to be spent on payouts are marked ''not for publication''.

The documents also contain Treasury's underlying predictions of ''separations and redundancies'' at $77 million in 2013-14 and $133 million over the remaining three ''out years''. But an analysis by Fairfax Media reveals that Treasury has a history of grossly underestimating the annual payment bill for discarded public-sector workers.

In 2011-12, when the public service was still growing, Treasury predicted a payout bill of $57 million, but eventually paid out $234 million. The year before it paid $169 million in golden handshakes, despite forecasting $52 million.

In his speech in Canberra on Tuesday, Mr Hockey said he regarded the cost of separations of 14,473 public servants as an unfunded Labor decision that had superseded his party's election promise to cut the service by 12,000. ''Further expenditure includes provision for the unfunded redundancies associated with the reduction of the Australian Public Service by 14,473 staff,'' Mr Hockey said. ''This was a decision taken but never announced by the previous government and, of course, it was never properly funded.''

But Mr Hockey said the extent of the bloodletting in government departments might not have been fully revealed.

''Ministers are scrupulously reviewing their portfolios and getting on with the task of implementing the plans we took to the election,'' he said. ''The Expenditure Review Committee is already meeting and forensically examining every proposal to ensure it will achieve its aims.

''We have put in place a commission of audit tasked with designing a program that helps government live within its means.

''We have already started this process of change by abolishing over 20 government agencies, where activities are no longer needed or can be managed within existing departmental resources. But there is scope for much more.''

According to the Treasury's MYEFO papers, decisions on payouts would be made department by department.

''Funding will be provided following an agency-by-agency assessment of the need for funding to reduce staffing levels and to avoid operating losses and place them on a sustainable financial footing,'' the midyear review papers state.

''Funding for this measure is not for publication while assessments are undertaken.''