What Officials Said About Pay Equity Changes

Scoop

3 days ago

Article – RNZ
Treasury documents show the pay equity reset was key to meeting the coalition's cost-cutting goals., Political Reporter
The minister who ushered through the pay equity changes said any limitations on workers' rights were justified in order to reduce the risks to employers.
A document dump from the Treasury and the Ministry of Business, Innovation, and Employment (MBIE) showed the processes the government went through to change the pay equity framework, and then return contingency funding to the Budget allowances.
Workplace Relations and Safety Minister Brooke van Velden, who introduced the legislation, acknowledged the changes would likely be contentious, but were necessary to meet the government's policy objectives of keeping a pay equity system, while changing the framework for assessing whether there is sex-based undervaluation.
The government worked on the changes in secret, before announcing the amendment bill in May and passing it under urgency.
At the Budget, Finance Minister Nicola Willis revealed the changes had saved $12.8 billion over the forecast period.
'This is justified' – Brooke van Velden
The short timeframe to get the bill passed before the Budget meant there had been 'limited testing and analysis' of the policy proposals, and the retrospective provisions in the bill were 'inconsistent' with general principles.
MBIE acknowledged the transitional provisions would likely be 'contentious' but without them it was unlikely the amendments would 'meet the policy objective of ensuring the regime achieves pay equity, whilst better managing claims, and ensuring costs are related to sex-based differences in remuneration.'
The legal risks remained redacted, and the bill had no Regulatory Impact Statement.
The process was also kept secret to prevent a surge of claims being lodged and potentially determined under the existing Employment Relations Act.
The acting Attorney-General, Paul Goldsmith's consideration of the bill concluded that while it imposed limits on the right to freedom from discrimination, the right to justice, and freedom of expression, it was still consistent with the Bill of Rights Act.
The paper van Velden took to Cabinet for approval, included in MBIE's document dump, shows she considered any limitations on the rights to be justified.
'I consider that this is justified to meet the policy intent of allowing employers to better manage their operations, reducing potential risks to an employer's financial viability, which may lead to a reduction in employment or the quality or quantity of services provided,' van Velden wrote.
Finding the contingencies
In December 2023, shortly after assuming the government benches, the finance minister requested more information on how the pay equity forecasts worked and whether there were any upcoming large claims.
In February 2024, the Treasury reported back, saying the approach brought in by the previous government had contributed to higher cost outcomes, as it disincentivised agencies and funded sector employers from taking a lower-cost bargaining approach.
'While the current Pay Equity process does require agencies to seek a bargaining contingency prior to the bargaining phase, this occurs late in the process, and many of the potential parameters for settlement are already largely agreed between the parties,' officials said.
'The absence of financial incentives during the pre-bargaining phase may have contributed to agencies adopting approaches which exceed the minimum requirements of the Equal Pay Act, for example, agreeing to higher paid comparators when lower paid ones would be appropriate.'
It also meant the Cabinet had 'poor visibility' of the costs, until parties were at or near settlement.
Treasury said pay equity costs were managed outside of Budget allowances, and there was merit in exploring an approach that brought some or all of the costs back within Budget allowances.
By April 2024, Cabinet had agreed to a reset, bringing pay equity funding into two centralised tagged contingencies: one for the funded sector, the other for the public sector.
This still allowed the government to meet its legal obligations as an employer, but was deemed to support the coalition's fiscal strategy.
However, by the end of 2024, the government was looking to disestablish the funded sector contingency, identifying it as a significant spending commitment.
It expected service providers to manage their own claims, with any cost pressures they created managed like any other cost pressure: through the Budget process.
How the money was found
Nicola Willis chose to close the funded sector contingency and return the funding to the Budget 2025 allowance and capital allowance.
This saved $9.6b over the forecast period.
For the public sector contingency, Treasury recommended it be retained, but at a reduced level.
'On balance, we consider retaining the contingency at [redacted] for residual costs to protect future allowances to be preferable given the legal obligations on the Crown as an employer under the new Act and Treasury's judgment that we can quantify the impacts with more than 50 percent confidence,' Treasury wrote.
The government adopted this approach, with the tagged public sector contingency reduced by $3.2b over the forecast period.
In total, the changes returned around $12.8b to the Budget 2025 operating and capital allowances.
Closing or reducing the contingencies without some certainty from Cabinet on policy change, however, was seen to potentially 'strain the credibility' of future Budget allowances.
And so, the future approach to pay equity was developed.
Van Velden's legislation discontinued 33 claims and increased the threshold for what qualified as work that was 'predominantly performed by female employees.'
All review clauses under settled claims became unenforceable.