District Health Boards may have to cut up to $200 million from their spending next year on official advice to the Government.
In the leaked cabinet committee papers, the Treasury has warned that the Government's operating budget was oversubscribed, and ministers needed to make some tough funding decisions in health.
The cabinet documents on health funding for next year's budget were leaked to the Labour Party and asked ministers what level of funding should be signalled to district health boards for next year's budget.
The DHBs need an extra $440 million in 2015/16 but the Treasury recommended giving them just $250m, while the Ministry of Health proposed $320m.
The Treasury warned that under either option, DHBs would face considerable financial pressure, and cost efficiencies would be needed.
Labour's health spokesperson Annette King said DHBs were already struggling to cover costs.
"This is not the first time they've been asked to make savings. Now the amount of money that's suggested in this paper is just over $80 million across all the DHBs for cost pressures. That is not acceptable and the DHBs will have to really start cutting into the bone. They've already cut as much as they can."
The union representing health professionals said District Health Boards had been underfunded for years.
Association of Salaried Medical Specialists executive director Ian Powell said further cuts would be savage.
He said at a certain point there would be a risk to patients in terms of the services they received.
The quality of those services could be compromised, he said.
"The better your public health system, the better the economic performance of the country. So this is not only poor health decision making but poor economic decision making."
Annette King said health workers pay packets would likely be hit first.
"The first cut will come in terms of salaries because they make up between 60-70 percent of the costs of DHBs."
Council of Trade Unions economist Bill Rosenberg warned more doctors would walk.
"We're already seeing things like specialists packing up their bags and leaving because they just feel that the DHBs are not funding the areas they are responsible for sufficiently."
Health Minister Jonathan Coleman said the funding signal for DHBs for 2015/2016 had not yet gone out.
"What I can say is that every year health funding increases, every year services improve, every year DHBs are required to make savings and this year will be no different."
Dr Coleman expected resources would continue to be redirected from back office functions to clinical services.
The Nurses' Organisation meanwhile said the public health sector is at bursting point and further cuts would hurt patients and drive up the cost of health care.
Spokesperson Lesley Harry said patients are already suffering with health services stretched to the limit and further cuts would result in poorer health care at a higher price.
Ms Harry said nurses are under extreme pressure with short staffing levels and having to deal with increasing violence from frustrated patients.