Nearly 9000 public service roles will be cut over the next three years under a sweeping Government overhaul that promises $2.4bn in savings through mergers, more AI use, and budget caps, Finance Minister Nicola Willis says.
Willis and Public Service Minister Paul Goldsmith revealed earlier today that the core public service could be brought down to about 55,000 staff, a level they described as the historic norm of roughly 1% of the population, with a sinking lid policy.
There are currently around 64,000 core public service roles. The change would represent a reduction of around 8700 full-time equivalent roles.
The Finance Minister used a pre-Budget speech in Auckland to announce the changes, which include slashing "most" agency operating budgets by 2% in the coming year and a further 5% in each of the two years after that.
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"Those savings add up, and have created significant headroom for higher-priority investments, a total of $2.4 billion over the forecast period, averaging $597 million a year.
"These savings will now be deployed to better purposes – to delivering more services in our health system, to increasing educational resources for our schools, to building infrastructure and strengthening our defence force and police," she said.
Willis also said that "over the next three to five years, we are going to significantly reduce the number of public service agencies" with mergers envisioned on the horizon.
Several agencies and departments excluded
The changes do not affect teachers, doctors, nurses, Health NZ staff, police or defence personnel. The Defence Force, NZ Police, Oranga Tamariki, Corrections, the intelligence services, among several others, have been excluded from the savings exercise.
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Other core public service agencies excluded from the culling exercise included the health, justice and defence ministries. The Education Ministry would also be excluded from the "baseline savings exercise" but notably "excluding tertiary functions".
The Government would be placing a sinking lid on agencies' operating budgets to force the changes, Goldsmith said, with departments and organisations expected to show regular improvements in productivity and value for money.
Among the first mergers of departments will be a new Ministry of Cities, Environment, Regions and Transport, combining the separate housing and urban development, transport and environment ministries — this move had already been announced last year.
Citing the new ministry as an example, Willis said she expected more of the same.
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She said: "Following today’s announcement, public service agencies will be asked to come up with proposals to logically merge their existing activities around citizen-facing functions, using common technology platforms.
"We expect to announce more detail in the coming months."
Willis says govt to be 'fully on board the AI revolution'
In her announcement, the Finance Minister framed the cuts as a response to the rise of artificial intelligence tools, which would "deliver better value for money".
"In too many parts, the back-office of Government still looks like an eighties relic, run on old-fashioned systems, with slow bureaucratic processes that are too often about box-ticking rather than improving outcomes," she said.
"In truth, we are reaching the limits of the current public service operating model."
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New Zealand has 39 departments and ministries administering budget lines, compared with 16 in Australia, 24 in the United Kingdom and about 12 in Finland, Willis said.
"The Government's Chief Digital Officer will oversee investment in digital systems to move human resources, payroll, case management and other systems to the cloud and to embed AI deployment as a basic expectation for all public entities," she said.
"We’re going to ensure government is fully on board the digitisation and AI revolutions sweeping the world."
She added: "For too long, the public service has been scared of AI, slow to move to the cloud, and has procured a complex and fragmented set of overlapping IT solutions.
"We need to digitise both customer-facing services and back-office systems to make it easier and more affordable for people to interact with government agencies.
"We have a Government Chief Digital Officer with responsibility for overseeing digital investments. His mission: to improve services and drive down cost."
Public Service Commission data puts the core public service workforce at 63,600 full-time equivalents as of December, around 8600 above the new "in-principle target" of 55,000. That December figure had already fallen from a peak of 65,700 in 2023.
'In-principle target' of a 'historic norm' by mid-2029
Goldsmith said the Government wanted to return numbers to the "historic norm" by July 2029. He framed changes as a response to the former Labour government.
“Historically, core public service numbers have been equivalent to about 1% of the population. Between 2017 and 2023 those numbers ballooned out to about 1.2%," he said.
"As part of the programme, the Government will restore public service numbers to the historic norm by mid 2029.
"That will be an in-principle target of about 55,000 public servants."
Goldsmith said, "reductions will be achieved progressively over several years through digitisation, mergers, simplification of systems and processes and natural attrition."
“These changes apply to the core public service so do not include teachers, doctors, nurse of other Health NZ staff. Nor do they apply to police or defence personnel.
“This is about ensuring the public service is modern, focused, productive and financially sustainable over the long-term, with a core focus on frontline delivery," he said.
The Government Communications Security Bureau, the Security Intelligence Service, the Education Review Office, Crown Law, the Serious Fraud Office, and Parliamentary agencies were also excluded from the savings exercises.
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The Public Service Commission is also tracking the Government's "100 highest potential leaders" and plans to launch a new academy to develop future leaders and "professionalise its talent-development efforts", Willis said.
Budget previews
Willis also used the speech to preview several Budget 2026 priorities, including a larger capital spending envelope for infrastructure projects, what she described as a "major lift in funding for our health system", targeted investments in schools, police and corrections, and continued enhancement of Defence Force capability.
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She said the Budget would continue the Government's work to get the books back in balance, despite a global fuel crisis.
"With a global fuel crisis underway, some would have us put those plans on hold. We say no, those goals are more important now than ever before," she said.
"With careful budgeting and ongoing reprioritisation we have been able to achieve a lot.
"On Budget Day we will announce a series of investments needed to make this a stronger, more resilient, and more affordable country now and in the years ahead."
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