NSW Premier Chris Minns has declared the state’s workers’ compensation scheme is breaking under the level of psychological injury claims and only sustainable for “another two years”.

Minns refused to rule out excluding a major cohort of workers, despite warnings that the government’s existing proposal to lift the threshold for whole person impairment (WPI) needed to claim lump sum damages for psychological injuries from 15 to 30 per cent was tantamount to ending the scheme for these workers.

The NSW government is facing a showdown with the state’s unions over proposed changes to severely limit employees who suffer psychological injuries on the job from claiming benefits.

Treasurer Daniel Mookhey flagged the changes after the number of psychological injury claims doubled over the past six years, while return-to-work rates have sunk.

Retired Sydney psychiatrist Dr Julian Parmegiani, who led the design of the Psychiatric Impairment Rating Scale for the Carr government in the late 1990s, said the government’s proposal to increase the WPI level to 30 per cent would effectively end the scheme.

But Minns left the door ajar, underscoring what he claimed was an unsustainable system with only “another two years” left, saying without change “the scheme will be done”.

“I’m not going to rule it out,” Minns responded. “We haven’t finalised the package yet ... we’re not doing it because we want to do it for any other reason that we want the system to be sustainable … we want to make sure that we’ve got a scheme that exists not just for the next 10 years, but 20 or 30 years beyond that.”

State insurer icare has warned its bottom line is being “adversely impacted” because psychological claims more regularly reach a 15 per cent impairment. However, experts have said the 30 per cent threshold would be near impossible to reach.

Parmegiani said the existing level was “already very high” and would involve someone “not functioning in their day-to-day life”.