A new analysis suggests that reverting to the old pay equity regime could cost the Government approximately half of previous estimates. This analysis is based on Treasury commentary indicating that the previous regime contributed to faster economic growth and higher wages, which collectively boosted tax revenue.
Although Treasury disputes an aspect of the analysis behind the figure, describing it as “misleading,” its publication could significantly impact the election campaign, as the coalition government has argued that restoring the old regime is unaffordable.
For a year, Labour has refrained from stating how it would fund its promise to reinstate the previous system.
The coalition commonly estimates the cost of reinstating the former pay equity program at $11 billion. This is the amount Treasury stated the Government saved by moving to a more limited regime in the 2025 Budget. This figure makes it one of the most expensive single election promises from a major party in recent years and has fueled coalition attacks on Labour, claiming that reverting to the previous approach is unaffordable.
However, an analysis by Victor Consulting, based on Treasury figures, argues the cost falls to $6 billion when factoring in the increased tax revenue that would result from bringing back the old regime. This is because the cost of the system would flow into people's pay packets, leading to higher taxes, and a portion of the remaining income would be collected as GST.
The analysis was commissioned by the Public Service Association (PSA), which represents many workers affected by the coalition’s rollback of the old regime. Victor was founded by Clint Smith, a former staffer from the last Labour Government.
The main figures in the analysis, however, originate from Treasury itself. The agency disputes some interpretations of its analysis and has acknowledged that some of its own wording could have been clearer.
In a letter sent by Treasury in June 2025, one of its senior analysts stated that pay equity changes saved $11 billion in gross terms over the four-year forecast period. However, the letter also noted that the removal of pay equity and “slower-than-otherwise wage growth and lower than otherwise government consumption” had flow-on effects that could reduce this cost to a smaller net figure.
Using Treasury’s macroeconomic forecasting model, Matai, analysts estimated that nominal GDP would be cumulatively $13.5 billion lower over the forecast period, while tax revenue could be cumulatively $5 billion lower due to reduced PAYE and GST tax revenues.
“This would see the net operating balance improving by around $6 billion over the forecast period due to the removal of the pay equity contingency,” the Treasury letter stated.
Put simply, this means that on a net basis, the $11 billion four-year saving from scrapping the old pay equity regime also resulted in a $5 billion loss in revenue for the Crown. Taken together, this suggests the total saving to the Crown was closer to $6 billion rather than the previously stated $11 billion.
“This $1.5 billion a year is the ‘bottom-line’ impact on the books that the Government of the day would have to budget for and represents 1% of core Crown revenue,” the Victor report states.
This calculation is central to the Victor analysis.
The Herald approached Treasury for comment on the analysis. In a statement, Treasury said the letter “should have been more clearly worded” and that it would be “misleading to conclude that the net impact was $6 billion.”
“Estimates of gross and net impacts should be considered in the context of the wider Budget 2025 package,” a Treasury spokesperson said. “The actual economic and tax implications will depend on other Budget 2025 decisions that were enabled by the change in pay equity policy, including higher gross expenditure than would otherwise have been possible – these effects were taken into account and explained in our [Budget Economic and Fiscal Update] 2025 forecasts.”
Treasury did not provide a new net figure for the cost of pay equity, reiterating that the gross cost was $11 billion.
National’s finance spokeswoman Nicola Willis has previously highlighted the cost of reinstating the old regime as central to claims that Labour had an “$18.2 billion hidden bill” – the difference between spending Labour has announced and the amount of new revenue needed to pay for its promises.
Willis has alleged that Labour plans to implement as many as nine new taxes, borrowed from its likely coalition partners, to cover these costs.
Labour has stated it will only implement its Capital Gains Tax and scrap the Investment Boost tax credit, which will effectively increase the tax burden on some businesses. It is also considering reinstating a ban on deducting interest costs for residential landlords, a change National argues will be passed on to tenants.
It is not yet clear how beneficial the new figure will be to Labour as it prepares its fiscal plan, which essentially serves as an alternative Budget for the election.
Labour leader Chris Hipkins has previously described Treasury’s pay equity costings as “made up.”
Traditionally, major party fiscal plans are prepared according to Treasury rules, which may require the gross $11 billion figure to be used, although Labour might be able to argue that the net fiscal impact is lower.
The party is expected to announce its fiscal rules this weekend.
Analysis of Treasury modelling indicates that pay equity would boost GDP and employment at a lower cost.
New analysis based on Treasury data suggests that pay equity is one of the most effective economic growth policies a government could implement. If the Government reversed its cancellation of pay equity, it would boost the economy by $13.5 billion, creating 13,000 jobs. This economic growth would generate an additional $5 billion in tax revenue, reducing the net cost of pay equity to $6 billion over four years, or $1.5 billion annually. According to Treasury, for every dollar of net government spending on pay equity, the economy would grow by $2.25. This represents a substantial return on investment, surpassing similarly sized spending decisions made by the current Government, such as Investment Boost and the restoration of landlord tax deductions. Government involves choices. Pay equity is a better choice for growing the economy and creating jobs. This is not merely a reflection of the fact that injecting more money into the economy (a greater fiscal impulse, in Treasury terminology) tends to create growth. Pay equity is particularly impactful because the money flows to lower and middle-income households, which tend to have more unmet basic needs and therefore spend that money in their local communities. In contrast, policies benefiting wealthier households tend to result in higher savings or spending abroad, not domestic spending.
GDP growth
In 2025, Treasury utilized its macro-economic forecasting model, MATAI, to estimate the effects of pay equity on the broader economy. From an economic standpoint, pay equity provides a $2.7 billion annual boost to the incomes and spending power of lower and middle-income workers. This stimulates the economy through a multiplier effect, as these workers will quickly spend this income in their local communities, creating additional demand. This leads to increased domestic production and jobs, which in turn fuels further demand in a virtuous cycle. As IMF studies have found, “boosting the incomes of the poor and the middle class can help raise growth prospects for all.” Treasury’s MATAI analysis found that the Government’s cancellation of pay equity claims:
“results in slower-than-otherwise wage growth and lower than otherwise government consumption… nominal GDP would be around $13.5 billion cumulatively lower over the forecast period, while tax revenue could be up to $5.0 billion cumulatively lower due to a combination of lower PAYE and GST tax revenues.”
The loss of pay equity payments meant foregone spending by pay equity recipients, which would have generated economic activity and jobs in the wider economy, as well as tax revenue for the Government. In other words, reinstating pay equity would grow the economy by $13.5 billion over four years, or $3.4 billion annually (0.6%).
For comparison, Treasury’s modelling found that Investment Boost would have a much more muted impact, generating only $6.4 billion of GDP (0.3%) over the forecast period from a $6.6 billion government spend ($4 billion net of additional tax).
Job growth
Statistics New Zealand data shows a strong correlation between GDP growth and employment growth (r = >0.7). On average over the past 35 years, for every 1% the economy grows, the number of employed people grows by an average of 0.7%. Based on this, it can be estimated that the 0.6% GDP boost from reinstating pay equity would increase employment by 0.45%, creating approximately 13,000 jobs. For comparison, the March 2026 labour force data from Statistics New Zealand shows there are 28,000 fewer people employed today than at the peak of employment in the December 2023 quarter.
These are not jobs in the pay equity professions themselves. Pay equity would enable workers to spend more. This increased demand would lead to more jobs in the businesses they patronize. In turn, these additional workers would also spend money, creating further jobs, with the overall increase in employment estimated at around 13,000 people. This would, in turn, have a positive ripple effect on wages in the wider economy due to the reduction in surplus labor. The job creation effect is likely to be particularly positive compared to other initiatives like tax cuts for businesses and the wealthy. As studies by the IMF and others have found, initiatives that channel money to the already wealthy result in a higher proportion of that money being saved or spent on imports/overseas travel, while low and middle-income workers who benefit from pay equity tend to spend more of their incomes, and more of that spending is on local goods and services.
Fiscal impact
The Treasury analysis also indicated that the net fiscal impact of pay equity is not the $12.8 billion frequently cited, but $6 billion over four years.
Treasury provides two reasons for this discrepancy:
An accounting technicality: “Around $1.8 billion of the savings come from the current year [2024/25], reflecting the anticipated settlements this year that have not eventuated. This resulted in one-off savings.” Government fiscal forecasts are for the next four years, so the cost of reinstating pay equity would not include this one-off effect in 2024/25.
Foregone tax revenue: “tax revenue could be up to $5.0 billion cumulatively lower due to a combination of lower PAYE and GST tax revenues … due to the removal of the pay equity contingency.”
As a result, Treasury states that removing pay equity resulted in “the net operating balance improving by around $6.0 billion over the forecast period.” It is likely that this is a conservative estimate as it does not account for reduced income support payments resulting from both the pay equity workers having higher incomes and people moving off benefits due to the 13,000 jobs created. This means that restoring pay equity would result in $11 billion over four years ($2.75 billion per annum) of payments from the government to the affected workers, but generate $5 billion ($1.25 billion per annum) in tax revenue returning to the government from the resulting economic activity. The resulting net impact on the fiscal balance (surplus/deficit) is $6 billion, or $1.5 billion per year. For comparison, the forecast OBEGAL deficit for 2026/27 is $14 billion and includes $1.8 billion for just a 16km new road.
This $1.5 billion a year is the ‘bottom-line’ impact on the books that the Government of the day would have to budget for and represents 1% of core Crown revenue.
Return on Investment
A new government spend of $1.5 billion a year for a $3.4 billion annual boost to the economy and 13,000 additional jobs represents a 2.25:1 return on investment. A benefit-cost ratio of 2.25 is higher than many major government investments. Treasury modelling shows Investment Boost will create $6.4 billion of growth from a $4 billion net government spend over the forecast period – a BCR of 1.6. Treasury produced no macroeconomic modelling of the restoration of interest tax deductions by landlords but noted that the benefits would flow to higher wealth households, which are less likely to spend additional income.
