A squeeze on state service backroom functions has saved just $20 million in two years, Treasury boss Gabriel Makhlouf has revealed.

The Government has shed more than 2500 jobs in the past three years and ordered chief executives to shave their IT and human resources bills as part of a drastic overhaul of the public service.

But despite ambitious plans to save $1billion over three years, a `benchmarking' report to be published next week will show 31 agencies and departments have managed to reduce spending by just $20m.

In his first major speech since taking over at No1 The Terrace, Mr Makhlouf told the Institute of Chartered Accountants in Wellington yesterday: "Some individual agencies have made substantial gains, reducing up to $8m in the cost of some functions. But overall, reduction in expenditure is limited – around $20m in inflation-adjusted terms."

In last year's Administrative and Support Services Benchmarking Report, Treasury estimated government agencies could save more than $230 million a year from back-office functions.

Mr Makhlouf said "mindsets are shifting" in the state service but there was more "radical transformational change" to come.

And he signalled a pay freeze in the sector would continue. "Fiscal constraint is not going away any time soon ... the days of everyone getting a pay rise every year simply for time served are over.

"But this is not just about short-term cuts to get through to next year's budget. This is not just about tightening our belts. This is not a fad diet. This is about a shift to a healthier lifestyle."

Prime Minister John Key will unveil further reforms of the state service in a keynote speech this month.

Delivering better public services within tight fiscal constraints is one of the Government's five priorities.

Treasury's benchmarking report will be published on Wednesday and is based on data from the financial years 2009-10 and 2010-11.