Mr Whitehead yesterday gave a speech in Wellington where he outlined a "much more managerial" approach for the public service with the goal of raising productivity.
He talked about contracting out services, for example prisons, and focused on the increase in the public service -- 44 percent more employees between 2000 and 2007.
Mr Whitehead said he was not saying the public service should be slashed -- there have already been about 1500 redundancies following line by line reviews to tighten spending.
"What I was actually saying was looking forward...the public sector has to grow more slowly than the export and the private and competitive sector," Mr Whitehead told Radio New Zealand.
"And I guess ultimately the point I was making is you can't freeze jobs, you've got to be able change as circumstances change so we are doing the most important things for the people of New Zealand."
Mr Whitehead defended calling for greater use of the private sector.
"I wasn't fundamentally talking about privatisation, I was talking about lifting our management game in the public service, and one of the ways of doing that is looking for private sector alternatives and learning from them."
Contracting out some services should be done if it made sense.
"What I was saying was actually if we look outside we can learn from the private sector, we can learn internationally from the public sector experience, and, sometimes, you may well find contracting out gives a better service for less and we should be prepared to face up to that if that is the case."
He said the sector needed to clearer about what it was trying to achieve and measure it better.
Mr Whitehead said the sector needed to take risks.
"When times are tough often you can find better ways of doing things, you've got that incentive.
"Occasionally that will go wrong and I guess I am asking for a bit of public understanding on that. As long as people are trying that's the really important thing."
Treasury itself needed to change -- for example its rules encouraged some departments to have an end of year spend up if there was any budget left over when instead there should be incentives for not spending it all.
Mr Whitehead said he wanted to encourage debate and focus within the public service.
"All New Zealanders are having to tighten their belt and I am very keen to ensure that the public service plays its part in that situation."
The Public Service Association (PSA) national secretary Brenda Pilott said Mr Whitehead was sending a clear signal for privatisation of public services.
"He believes that this will lift productivity. We reject that view," she said.
She said bad management in the private sector had created the worst global recession since the Great Depression.
Ms Pilott said a major overhaul now would cause disruption and stop increased productivity.
The speech was in line with the Government's call for more efficiency in the sector and it is setting up a productivity taskforce.
The state sector consists of 41 departments, 84 statutory crown entities, 11 crown entity companies, 17 state-owned enterprises, 31 tertiary education institutions and various "schedule four entities" like the Lottery Grants Board.
