See your previous post regarding elementary formulae.
Equality is defined in Gödel's system; we have that $x_1=y_1$ is :
$x_2 \Pi (x_2(x_1) \to x_2(y_1))$
that reads : $\forall P [P(x_1) \to P(y_1)]$.
Form the logical law : $P(x_1) \to P(x_1)$ [*], we can derive the immediate consequence [**] : $\forall x_1 \forall P [P(x_1) \to P(x_1)]$, that reads :
$\forall x_1 (x_1 = x_1)$.
Using logical axiom-schema III.1 :
$v \Pi (a) \to \text {Subst} \ a^v_c$
that reads : $\forall v \varphi \to \varphi [v/c]$, with $0$ as $c$ we get, by modus ponens :
$0=0$.
Regarding Peano axioms, I'm quite sure that there is no mistake in Gödel's system.
The system is an high-order logic system (this is the reason why he can define equality, instead of using the usual fist-order axioms for it).
The arithmetical axioms used by Gödel are the translation in his own system of the last four axioms of original (second-order) Peano's formulation in Arithmetices principia, nova methodo exposita (1889).
The paper you have linked proves : $\mathsf {PA} \vdash (\forall x)(x = 0 \lor (\exists y) (x = sy))$ [it is a theorem, and not an axiom] using the induction axiom as well as some "theorems of pure logic" .
Having proved in Gödel's system $P$ that $0=0$, with 1.3 of Principia : $\vdash q \to (p \lor q)$ (one of the "theorems of pure logic" needed), we have :
$P \vdash 0=0 \lor (\exists y) (0 = sy)$.
Using equality we have : $sx=sx$, and thus $(\exists y) (sx = sy)$.
Thus, with 1.3 again, we conclude with :
$P \vdash sx=0 \lor (\exists y) (sx = sy)$.
Finally, with 2.02 of Principia : $⊢ q → (p→q)$ we derive :
$P \vdash ((x = 0 \lor (\exists y) (x = sy)) \to (sx = 0 \lor (\exists y) (sx = sy)))$.
Now the result follows by a suitable instance of the induction axiom schema and modus ponens.
Notes
[*] The logical part of Gödel's system is W&R's Principia Mathematica; see page 101 for the proof of:
2.08 $⊢ p → p$,
called the "principle of identity".
[**] In your translation one of the two rules of inference is omitted (it seems a typo) but it is used in def.43 IMMEDIATE CONSEQUENCE.
The two inference rules in Gödel's system are described as follows :
A formula $c$ is called an immediate consequence of $a$ and $b$ if it is the formula $(\sim (b)) \lor (c)$ [i.e.: $c$ is an immediate consequence of $a$ and $b$ if $a$ is $b \to c$ ], and it is called an immediate consequence of $a$ if it is the formula $v \Pi (a)$, where $v$ denotes any variable [i.e.: $\forall x \varphi$ (or $\forall P \varphi$) is an immediate consequence of $\varphi$ ].