Australians will be entitled to a free year of tertiary education in New Zealand, under legislation to be introduced next year.
The Labour Government's tertiary education policy will fully subsidise the first year of post-school education for New Zealanders in 2018, to be extended to three years by 2024.
Australians studying in New Zealand would also be entitled to the free-fees scheme.
But Prime Minister Jacinda Ardern is threatening to withdraw that entitlement if Australia increases fees for New Zealand students.
The entitlements will apply to Australian students because they are treated as domestic students and receive the same subsidised fees. The policy is mutual - New Zealanders currently pay domestic fees to attend universities in Australia.
But the days of New Zealanders gaining subsided fees at Australian institutions could be numbered, with Australia proposing to remove the subsidies.
The policy is currently stalling in Parliament, but if the Australian Government find the numbers to pass it, Prime Minister Jacinda Ardern says Australians will miss out here too.
"I think New Zealanders would expect that," Ms Ardern said, during a post-Cabinet press conference on Monday. "It's only fair that we have an equitable policy.
"I hope it doesn't come to that.
"If we do find that the reforms that have been proposed do come through and New Zealanders are unable to access domestic fee rates in Australia, then we will have a similar policy in New Zealand," she said.
National Party leader Bill English says it's hardly retaliation.
"We've got our truck drivers and checkout operators paying for Australians to get an education here; a better deal than they've ever had."
Mr English says New Zealand taxpayers are paying more so that Australians can get tertiary education here.