Newly released cabinet papers reveal Justice Minister Amy Adams rejected advice that Teina Pora's compensation package be adjusted for inflation.
In June, the Government announced it was willing to pay Pora just over $2.5 million to compensate him for wrongful conviction and imprisonment.
Justice Rodney Hansen, who evaluated the compensation bid, recommended the payout be adjusted for inflation in his report.
However, Cabinet papers obtained under the Official Information Act show that advice was rejected by Adams, who said it wouldn't be appropriate as inflation indexing wasn't provided for when guidelines were put in place in 2000.
She also said the current compensation rate was generous compared to other jurisdictions and no other successful claimant had had their payments adjusted for inflation.
The papers show the $100,000 per year sum for loss of liberty would have been closer to $138,000 per year if adjusted for inflation.
That would have seen Pora receive an additional $798,000, taking his settlement to more than $3.3m.
Labour MP Jacinda Ardern said the minister left the impression it had been a decision made by Cabinet, but the documents show it was Adams who recommended against an inflation adjustment.
She said Justice Hansen gave good cause for the compensation payment to be inflation-adjusted, but Adams dismissed his arguments.
Green Party Co-Leader Metiria Turei agreed Pora's compensation should have been inflation-adjusted, pointing out compensation is the consequence of the system failing - as it did in Pora's case.
She said it wasn't a huge amount of money in the context of government Budgets and it was right for Government to ensure justice was done in cases like this.
Turei said it looked, from the Cabinet papers, like Pora had been denied justice again. Newstalk ZB