Opposition parties seized on today's announcement as yet another admission from the Government that the system had been a costly disaster, but Mr Key defended the decision.
"If you look forward, the sector will take quite a lot of confidence that effectively the Government is taking over the programme and the project. They'll know it will be properly resourced and properly looked after."
When reminded that Mr Joyce had called it a dog he said, "Yeah, but I think it's come a long way since then".
"It's actually fundamentally operating pretty well. This is a very complex sector there's a lot of different pay scales for teachers it's not an easy thing. But the Government has stabilized it and got it working reasonably effectively and I think a lot of teachers will say thank goodness the Government now has some control over the process."
He said it was possible to make the argument the Government should have assumed control earlier, "and hindsight's a wonderful thing".
However the Government had now made "the right call" over the system which he said was originally signed up to by the previous Labour Government.
President of the New Zealand Principals' Federation Philip Harding said his members were encouraged that Talent2 had withdrawn from managing the system, but warned "there is a long way to go before principals will have any confidence in the system".
"'The announcement does not cure the Novopay shambles that the sector has been battling for the last three years."
"The same challenges of random errors, frustratingly slow problem resolution, inaccurate personnel data, and significantly increased workload will continue," he said.
"Success will be determined by the way the new entity is managed, and more importantly, resourced to deal to these priorities."
Meanwhile, Mr Joyce earlier confirmed Talent2 will pay the Ministry of Education between $18 million and $22 million including $7m cash and other considerations such as license to use the core software by way of a settlement.
That sum was set against the $45 million the Government had paid to address the problems with the system. Overall Novopay had cost $110 million to date.
Mr Joyce said the agreement for the Government to take over should ''not necessarily be seen as failure on anyone's part any more than it had been''.
It was, he said, ''the next logical step''.
''This decision has been made in the best interests of all parties - staff administrators, schools and the Government.''
Talent2 said the "mutual agreement" settled a "flawed contractual arrangement" between itself and the Ministry of Education.
"This change allows Talent2 to better focus resources and investment on its core payroll business and broader New Zealand client base."
Labour's education spokesman Chris Hipkins said the announcement today would be "cold comfort to teachers and school staff still struggling with Novopay" and Talent2 was "dropping a hot potato in the taxpayer's lap".
"Goodness knows how much more (money) will be shovelled down this black hole before the problems are finally fixed."
He questioned why Education Minister Hekia Parata signed off on the system and why it had taken Mr Joyce so long "to finally decide to take action".
"Teachers and school staff have waited long enough for Novopay to be fixed. It has taken up their valuable teaching time, as well as hours and hours of school administration. Students and parents have also paid the price for this ongoing uncertainty."
NZ First education spokeswoman Tracey Martin said Mr Joyce had "admitted defeat" in cutting Talent2 loose.
"Mr Joyce cannot fix a system that National got so wrong in the first place, and has wasted tens of millions of taxpayers' dollars on."
