PSA-commissioned analysis cuts coalition’s pay equity cost claim in half

Two numbers, one enormous gap

How much would it cost to bring back New Zealand’s old pay equity regime? Depending on who you ask, the answer is either $6 billion or roughly $12.8 billion. That is not a rounding error. It is the difference between a policy a future government could defend and one it could not.

The lower figure comes from a Victor Consulting analysis commissioned by the Public Service Association. Its logic is straightforward enough: higher wages under the old regime flow into workers’ pay packets, generating more PAYE and GST, which offsets part of the gross cost. The analysis leans on Treasury’s own Matai macroeconomic model. A June 2025 Treasury letter estimated that removing pay equity and the resulting slower wage growth would leave nominal GDP about $13.5 billion lower over the forecast period, with tax revenue up to $5 billion lower.

That same letter contained a line the PSA seized on: the net operating balance improving by around $6 billion once the pay equity contingency was removed. Treasury now describes the union’s reading of its own work as misleading, while conceding some of its analysis was unclear and could have been worded better. Treasury’s position is that the gross fiscal cost is the figure that matters for budgeting.

Who is doing the counting

Neither of these numbers is disinterested. Victor Consulting was founded by Clint Smith, a former staffer in the last Labour government, and the analysis was paid for by the union that represents many of the workers hit by the rollback. That does not make the maths wrong. It does mean the maths deserves scrutiny.

On the other side, the coalition’s savings figure has been questioned since it was banked. In March 2026, Labour leader Chris Hipkins accused the government of using a figure it appeared to have just made up, while Treasury stood by it as reflecting the expected fiscal impacts over the forecast period.

How the number got so big

The blowout is real regardless of which reversal cost you believe. When the scheme was established in 2020, it was expected to cost $3.7 billion over the forecast period. By Budget 2025 that had grown to $12.8 billion, a more than threefold increase in five years.

In May 2025 the coalition passed legislation under urgency, discontinuing 33 active claims and raising the threshold for what counts as female-dominated work. Finance Minister Nicola Willis booked total savings of $12.8 billion and an ongoing $2.7 billion a year. Yet the actual cost of settlements to date was only $1.55 billion per year, meaning the contingencies carried a large buffer above what had actually been settled.

The missing referee

This is where the argument stops being technical and starts being about honesty. New Zealand has no umpire to settle it. The Taxpayers’ Union put the reversal cost at $6,400 per household and made the sharpest point of the whole debate: if Labour thinks Treasury is wrong, it should either prove it or back an independent policy-costing body to test the numbers.

There is an awkward twist. Labour finance spokeswoman Barbara Edmonds has previously drafted a Members’ Bill calling for exactly such an Independent Fiscal Institute, modelled on the UK’s Office for Budget Responsibility. New Zealand remains one of the few comparable economies without one, and both sides are now discovering why that matters. Labour has committed to reinstating pay equity but, as of August 2026, has not published detailed costings or confirmed whether the reinstated regime would match the old one.

Why employers should care

This is not a public sector spat that private firms can ignore. Closing the funded sector contingency leaves organisations like Plunket, Hospice and aged care providers exposed to pay equity liability without a guaranteed Crown backstop. And public sector settlements set wage floors that ripple into private hiring competition, particularly in care, education and administration. The Institute of Directors warned in 2025 that changing the law without consultation and with retrospective effect created difficulties for anyone doing long-term workforce planning.

The deeper problem sits underneath both numbers. A government that cannot credibly price its own labour policy is asking taxpayers and employers to sign a cheque with the amount left blank. Whether the figure is $6 billion or $12.8 billion, the fact that we are guessing is the story. Until there is an independent body to test the maths, every future pay equity fight will be another round of he said, she said, with businesses left to plan around numbers nobody can verify.

Sources

• Pay equity: Union says cost of reinstating old regime is $6b, but Treasury warns figure ‘misleading’ (2026-08-21)
• Labour leader Chris Hipkins reignites criticism of $12.8 billion pay equity figure as Treasury stands firm (2026-03-03)
• Pay equity spat calls for independent policy costings (2026-03-03)
• Labour pledges pay equity reversal but withholds specifics, for now (2026-02-24)
• What officials said about pay equity changes (2025-08-01)
• Budget 2025: Coalition claws back savings from pay equity, KiwiSaver, Best Start (2025-05-22)
• Pay equity reform – reducing cost or reducing equality? (2025-05-16)
• Treasury Report T2024/3362: Options for closing the Pay Equity Funded Sector Contingency (2024-12-13)