The New South Wales police commissioner holds “grave concerns” about the safety of Sydney’s famous New Year’s Eve fireworks if they coincide with industrial action on the train network – and she could recommend cancelling the event.

Karen Webb’s comments on Friday – which a union chief labelled unfounded “public hysteria” – left open the prospect of a new year without fireworks on Sydney Harbour, which could cost the economy $98m, according to Business NSW.

The commissioner told reporters that “leaving the city is based on access to transport, including trains, and, if trains aren’t available, and people can’t leave the city, I have very large concerns of the risk that will create to the public, because families won’t be able to get home and they’ll be trapped in the city [with] no way out”.

Webb said every year NSW police patrolled the event “on the basis that 250,000 people can come into the city and then safely leave the city”.

• Sign up for Guardian Australia’s breaking news email

“So I haven’t ruled out that I will recommend to government that we cancel the fireworks. It’s that serious.”

Webb’s comments followed a federal court decision on Thursday which quashed a temporary injunction against ongoing industrial action by rail unions.

The NSW government has since vowed to “take every possible measure” to ensure Sydney’s train network runs smoothly over Christmas and New Year’s Eve, lodging a request for the Fair Work Commission to suspend or terminate industrial action “to protect New Year’s Eve and stop rail disruption”.

The government argued that the action would risk community safety and cause economic harm.

The NSW transport minister, Jo Haylen, said the uncertainty and disruption caused by industrial action at this time of the year was “intolerable”.

Fair work hearings are due next week.

The premier, Chris Minns, said the state government would take on board any advice from police.

“That’s why we’re in court [trying to stop industrial action] – the stakes are high,” he said. “We’ve got a few steps to take before a decision’s being made but, as I said, we would of course take the advice of NSW police and the police commissioner.”

Sydney’s train network was disrupted from late on Thursday after the injunction ended. Services were cancelled and delayed on numerous lines within hours of the federal court decision.

Haylen conceded on Thursday afternoon that the government had no certainty about the train services that would run until a new pay deal was struck.

The Business NSW chief executive, Daniel Hunter, said on Friday it would “take years to recover” Sydney’s international reputation if the fireworks were cancelled at a cost to the economy of $98m.

“This is the time when small and medium business owners, especially mum and dad business owners, make their money. This may push many businesses into bankruptcy – and we’ve seen enough bankruptcies this year as it is,” Hunter said.

Get the most important news as it breaks

after newsletter promotion

A nervous City of Sydney mayor, Clover Moore – whose council organises the fireworks in the CBD – said she hoped the matter could be resolved quickly but noted she would ultimately follow directions from the police and government.

“If the police formally recommend cancelling the event, I will request an urgent meeting with the premier to discuss the matter,” Moore said, adding the fireworks showcased Sydney to the world and contributed an estimated $280m to the state’s economy annually largely via tourism.

The council – which has traditionally used the same family company for the fireworks display – said it would be liable for $6m in costs if the event was cancelled.

The Rail Tram and Bus Union (RTBU) state secretary, Toby Warnes, insisted that the actions planned for New Year’s Eve would not result in 50% fewer services as he had previously suggested.

Warnes said on Friday that the effects of industrial action would be minimal on 31 December because 40% more staff were rostered on anyway as a buffer.

The union leader blasted the NSW government for hitting “a brand new low”, suggesting Webb’s comments were orchestrated to bolster the government’s legal bid to cancel industrial action on New Year’s Eve. It was due to be heard at the Fair Work Commission next week.

Rail unions can take more than 200 approved industrial actions – including work stoppages, enforcing distance limits for drivers, orders to deactivate Opal car readers and a ban on the state changing rosters – without needing to provide an official notice period.

Haylen accused the unions of putting “a gun to our head” during negotiations, with the threat of cutting services throughout the rest of December but especially on New Year’s Eve.

“This is not a toy train set,” Haylen said. “You can’t just move it around with a click of your fingers and expect that that’s going to service the millions of people across Sydney that rely on it each and every day.”

Combined unions representing 13,000 rail workers have refused to budge from their demands for a 32% pay rise over four years. The NSW government’s starting offer to the rail unions has been a 9.5% pay rise over three years.

In November NSW police won a pay deal under which wages will rise by up to 40%.