New Zealand Cuts 8,700 Public Service Jobs and Merges Agencies to Save NZ$2.4 Billion

New Zealand will cut about 8,700 jobs from its core public service over the next three years as part of a broad government savings drive that also includes department mergers, tighter spending limits and greater use of artificial intelligence, Finance Minister Nicola Willis said on Tuesday.

The overhaul is designed to reduce the size of the core public service from roughly 64,000 staff to about 55,000, which Willis and Public Service Minister Paul Goldsmith described as closer to a historic norm of about 1% of the population. According to reporting from 1News and Bloomberg, the government says the changes will generate around NZ$2.4 billion in savings. The plan relies on a “sinking lid” approach, meaning agencies will face shrinking operating budgets and will be expected to lift productivity rather than simply replace staff who leave.

Willis said “most” agencies would face operating budget cuts of 2% next year, followed by reductions of 5% in each of the following two years. The government also intends to significantly reduce the number of public service agencies over the next three to five years, with mergers expected as departments are folded together. One of the first is a new Ministry of Cities, Environment, Regions and Transport, combining the housing and urban development, transport and environment ministries, a move that had already been announced previously.

The cuts do not apply to teachers, doctors, nurses, frontline Health NZ staff, police or defence personnel. Several agencies, including the Defence Force, Police, Oranga Tamariki, Corrections and the intelligence services, are exempt from the savings exercise, as are core ministries such as Health, Justice and Defence. The Education Ministry is also excluded from the main baseline savings plan, although not all of its functions are covered by that exemption.

The government says the changes are meant to make the public service smaller, more efficient and better able to deliver services at lower cost. The push comes as governments in several countries look to trim public spending and adopt AI tools to streamline administrative work, but New Zealand’s plan is notable for its scale: thousands of public servants could be affected, and entire departments may be reshaped or merged.

What happens next will depend on how individual agencies respond to the budget caps and restructuring orders. For workers, the announcement signals a prolonged period of uncertainty, with staffing reductions expected to be phased in over three years and structural changes continuing beyond that. For the government, the challenge will be balancing savings with the need to maintain public services, especially in areas where demand remains high.