ACT wants to let schools decide how much they pay their own teachers - with no upper limit.
At its campaign launch on Saturday, leader David Seymour said the best teachers end up leaving the profession or going into management, "away from the students that need them most".
"We need the best and brightest graduates teaching our kids," he told the party faithful at the Ellerslie Events Centre in Auckland. "But the incentive is just not there."
Mr Seymour said teachers are leaving Auckland in droves because they can't afford to stay.
"They can't afford a home. They're moving out of the city, or they leave the profession entirely."
To fix that, the party is proposing an extra $1 billion in funding for education - but to receive the extra money, schools "need to opt out of the centralised payroll system and collective agreements".
"ACT's proposed good teacher grants will give your average teacher a pay rise of $20,000 per year," Mr Seymour claimed.
"But in real terms, pay rises will vary significantly, because ACT will allow schools to recognise the performance and skills of individual teachers and negotiate contracts with them accordingly, recognising individual performance."
If schools opt out of collective bargaining, ACT says it'll fund them $93,000 per teacher - and schools will be able to "allocate the teaching grant how they want".
"By paying salaries comparable to other top professionals we will attract the brightest graduates, and will stop losing staff outside the sector. Great teachers will be able to make great money without having to leave their students to do admin work. It is a win-win-win."
He says top teachers might earn $120,000 under ACT's model.
Mr Seymour also promised more taxpayer funding for private schools at a cost of $40 million.