Prime Minister Jacinda Ardern says the health sector's finances are worse than she expected.
Nurses and midwives on Monday rejected a 2 percent pay rise offer from New Zealand's district health boards (DHBs).
They argue they've been underfunded for years and are threatening strike action, but Ms Ardern on Tuesday ruled out an immediate cash injection to fund the nurses' pay rise.
"If I said I was inserting a specific amount that then predetermines what the DHBs are negotiating," she told The AM Show on Tuesday.
"That I can't do. The DHBs need to be able to negotiate this as entities without me inserting myself into it."
She is working on her first Budget, and told host Duncan Garner money for the health sector was going to be tight.
"We already knew that there was a major crisis going on in health because the DHBs told us that," she says.
"We know they have deficits. I have to say it's worse than I thought, because coming in there was no suggestion that they were quite so underfunded, particularly around capital.
"What I didn't anticipate was how serious the issues would be in other portfolios as well, including areas like education."
Ms Ardern blames the National Government for the health sector's problems, saying there are only two DHBs that aren't in deficit.
"In terms of capital expenditure, DHBs have suggested they have - from memory - over $10 billion of investment required just in capital terms," she told Garner.
"The last Government - from memory - put aside roughly $600 million."
The New Zealand Nurses Organisation (NZNO) says industrial action is a last resort - but in mid-April, the NZNO will meet to plan a vote on whether to strike and discuss the details of it, should it go ahead.
The spokesman for the DHBs, Dr Ashley Bloomfield, appeared on The AM Show on Tuesday and said they "weren't surprised" by the no-vote.
"We will be exploring the suggestion the Prime Minister has made which is for an independent panel to be the next step in the process," he says.
"What we will be asking them is to make some recommendations about the offer and that includes the money but also other aspects of it."
Dr Bloomfield says the offer the nurses rejected was "right at the bounds of affordability" and the DHBs will need to work with the Ministry of Health to pay for an increased offer.
NZNO chief executive Memo Musa says the health sector has been underfunded for years, and nurses have been affected by this.
"Our members have clearly signalled they are not satisfied with the offer the DHBs have put forward," he told The AM Show.
"Nurses have been working under extreme pressure and in cases working with short staff, being unable to take breaks, being unable to complete the work they need to do to look after patients."
However Ms Ardern says she won't "insert myself" into the negotiation process and the strike threat is for the DHB and nurses to sort out.
"No one wants industrial action and everyone wants a resolution," she says.
"We'll be encouraging DHBs to make contact with the nurses urgently and suggesting that perhaps it's now time for an independent process."