Labour has spent months promising to restore pay equity. It has not told voters what that costs. Now the unions pushing hardest for the policy are signalling the bill could exceed $13 billion, above even the figure National used to justify scrapping the regime.
That moves pay equity out of the fairness column and into the fiscal one. Whatever the moral case, this is a multibillion-dollar wage commitment across health, education, care and community services, and it is being made without costings.
What was cancelled in 2025
In May 2025 the coalition scrapped 33 existing pay equity claims covering 180,000 workers, most of them women in care, disability support, education, health and social services. National said the move would claw back $12.8 billion over four years.
The groundwork was laid earlier. In March 2025 Cabinet removed $9.612 billion from the funded sector pay equity contingency and shifted $3.193 billion from the public sector contingency into the Budget 2025 operating allowance. Any future funded-sector claims now have to be met from existing baselines or new Budget allowances. In plain terms, there is no longer a ring-fenced pot. Restoration means finding the money fresh.
Four numbers, no consensus
The estimates on the table depend entirely on who is counting and what they count as an offset.
The gross figure most people quote is National’s $12.8 billion. Treasury’s commonly cited savings figure from moving to the narrower regime was about $11 billion. The PSA, using Treasury’s own MATAI model, argues restoration would lift the economy by $13.5 billion over four years, create around 13,000 jobs and return $5 billion in extra tax, cutting the net cost to $6 billion, or $1.5 billion a year.
Treasury built the model. It does not accept the union’s reading of it. It described the $6 billion figure as “misleading”. That rebuttal matters. Counting second-round tax revenue as a funding source is the kind of assumption that makes any spending look cheap.
The spread from $6 billion to more than $13 billion is over $7 billion. That gap, not any single figure, is the real finding. A party asking to run the books should be able to say where in that range it lands.
Treasury’s own history says aim high
The pattern on pay equity costs is upward. Historical advice released under the OIA in January 2026 showed Treasury’s initial three-year estimate for public sector claims was $285 million to $580 million, later revised to $2.228 billion for the state sector and $3.263 billion across the economy. The same advice put total costs at upwards of $2 billion a year, with back pay potentially adding up to $1.1 billion, and found real GDP would be largely unchanged once higher inflation and interest rates were factored in.
By 2024, a Cabinet paper put settlements to date at $6.2 billion over the forecast period, including $2.195 billion for care and support workers in 2017. Those costs were managed entirely outside Budget allowances, hitting the operating balance and net debt directly. In December 2024, Treasury described the funded sector contingency as $9.6 billion over the forecast period, set up to manage exposure to claims against NGOs and community providers.
Every previous estimate turned out to be a floor. There is no reason to treat today’s numbers differently.
Why employers should care
Pay equity settlements do not stay in the public sector. Rises of 20 to 30% in aged care, disability support and teacher aide roles reset wage benchmarks for private operators competing for the same workers. NGO and community providers on government contracts face the sharpest exposure. If claims restart without a dedicated contingency, those providers could be caught between settlements they must pay and funding that arrives late or not at all.
The PSA says restoration would put an average $300 a week into the incomes of 91,000 families. Voters seem open to paying for it. The same poll found 49% would accept delaying the return to surplus by a year, and 46% would accept pushing the 40% net debt target from 2032 to 2034. But that is a debt trade-off, and it should be put to voters as one.
The costing Labour owes voters
As of this week, Labour has committed to reinstating pay equity but has stopped short of revealing costings or what a replacement regime would look like. That is not good enough for a promise of this size. Business owners are entitled to know whether it will be funded through new taxes, more borrowing, a later surplus or cuts elsewhere.
The pre-election fiscal update exists to force exactly these trade-offs into the open. Labour should publish its number before voters go to the polls, and it should use Treasury’s assumptions, not the union’s.
Sources
- Stuff: Will Labour keep its pay equity promise? Unions say it could cost more than $13 billion (2026-09-29)
- The Post: Nearly half of voters would support delaying return to surplus by a year to restore pay equity (2026-09-25)
- NZ Herald: Pay equity: Union says cost of reinstating old regime is $6b, but Treasury warns figure ‘misleading’ (2026-08-21)
- PSA: Govt’s axing of pay equity cost jobs & GDP growth – PSA analysis (2026-08-23)
- Treasury: OIA Response 20250778 – Advice to 6th Labour Government on Fair Pay Agreements and Pay Equity costs (2026-01-12)
- Treasury: Cabinet Paper EXP-24-SUB-0032 Fiscal Implications of the Pay Equity Reset (2024-07-23)
- Treasury: Report T2024/3362 Options for closing the Pay Equity Funded Sector Contingency (2024-12-13)
Join the discussion
Add useful context, ask a good question, or challenge an idea — keep it specific and respectful.