Election 2026: Labour promises to reinstate pay equity, but only costs one claim, leaving $8.5b out of plan
The Labour Party published its fiscal plan on Sunday afternoon, reiterating a pledge to restore the old pay equity regime, but declining to include a specific cost for this in its spending plan.
A Treasury estimate from 2025 suggests restoring the old regime would cost about $11 billion over the forecast four-year period. Labour has costed an “interim” settlement for care and support workers at $2.5b but left costings for the claims out of its plan.
Labour has stuck to the coalition Government’s forecast of operating allowances of $2.4b a year. This is the “new” money for discretionary spending allocated each Budget. This plan spends some of that money but leaves $10.5b unallocated, which will be used to fund future promises, such as cost pressures in public services.
It will also need to fund the roughly $8.5b needed to settle pay equity settlements, suggesting very little money will be left over for other spending.
Labour defended the decision not to include an explicit costing, saying: “Pay equity is determined through negotiation. It would undermine the process to announce in advance how much had been set aside for individual claims.”
Labour leader Chris Hipkins said his Government would keep roughly to the same spending tack as the coalition and will keep operating allowances at the $2.4b set at Budget 2026.
He said the party’s “announced capital commitments fit comfortably” within the $12b of future capital allowances.
Hipkins said Labour also has almost $10.5b of future operating allowances unallocated. “We can deliver what we have promised without increasing those allowances ... We will return the books to surplus in 2028/29 and bring net debt down below 20% of GDP over time. We can do that because we have made better choices about where public money goes and will make every dollar work harder.”
Labour sticks to coalition spending path
Labour has matched the coalition’s spending track, adding only the revenue from its new capital gains tax, its repeal of the Investment Boost tax credit for businesses and its reversal of the excise cut for heated tobacco products.
This means Labour’s track back to surplus is the same as the coalition’s, announced at the Pre-election Economic and Fiscal Update (Prefu) earlier this week.
Public sector cuts scheduled to happen in the next four years will mostly not go ahead, saving Labour about $1.9b.
Despite attacking the coalition for health spending this term, Labour is matching the coalition’s health cost pressure track of $1.4b to $1.55b each year over the next Parliament.
This means that aside from its commitments to free GP visits, axing $5 prescription charges and increasing spending on scans and screening, there is no spending above what the coalition is promising on hospitals and tertiary level care.
Pay equity restored – but so far uncosted
Hipkins said he would restore the old pay equity regime in Labour’s first hundred days in power. From January 1, 2027, care and support workers would receive an immediate pay rise of $4 an hour.
This will mean the average fulltime worker will be $8320 a year better off, or $160 a week before tax.
Labour’s workplace relations and safety spokeswoman Jan Tinetti said: “This election is about the cost of living. Labour is doing what Christopher Luxon refused to do and paying women properly.”
“Care and support workers do some of the most important work in our communities, and overwhelmingly they are women.
“This immediate pay rise is real money for people who are paying the mortgage, the rent, the power bill and the grocery shop. It reflects their hard work and the hardship they’ve experienced these past three years under National.”
Another controversial part of the scheme is Labour’s decision not to cost its plan to freeze fuel taxes for three years.
Instead, this will be paid for by cutting transport spending from the National Land Transport Fund, which is money spent building and maintaining roads – including money given to local councils to build and maintain their roads.
‘A fraud’ – National
National’s finance spokeswoman Nicola Willis called the plan “a fraud”, claiming it left several promises unfunded.
Most glaringly, the plan’s funding for cost-pressure increases in the health system do not include a figure for the 2030/31 year.
Although this is consistent with the Prefu, it means that Labour will need to dig into its $10.5b headroom for an additional $1.55b or more for that year’s cost pressure increase.
“This is the least credible fiscal plan released by a major party in living memory,” Willis said.
“Today was Chris Hipkins and Barbara Edmonds’ opportunity to make Labour’s numbers add up and they have failed, far worse than anyone could have expected.
Willis took aim at the fact Labour was using cost-pressure funding to pay for the pay equity commitment.
“Labour says the rest of the money to fully restore the previous pay equity scheme will come from cost-pressure funding. If true, this would mean taking almost every dollar of unallocated funding for the next four Budgets, which means nothing more for schools, police, prisons, defence and other frontline social services,” she said.