Public Service transformation: Government departments to reduce, sinking lid on budgets, more AI use, target of 8.7K fewer public servants

The number of Government departments will reduce, $2.4 billion will be redeployed elsewhere, sinking lids will be placed on budgets and an in-principle target will be set for the number public servants in the Government’s public service reform over coming years.

That workforce target would remove almost 9,000 workers from the public service by mid-2029. 

From Auckland's North Shore, Finance Minister Nicola Willis announced the sinking lid on most agencies’ operating budgets aimed to “drive progress” on streamlining the number of government agencies and entities, digitising customer-facing and back-office government functions, and restoring public service numbers to "historical norms."

Baseline savings would be set at 2% in the coming year for most agencies, followed by 5% each year, for two years after. 

"Those savings add up, and have created significant headroom for higher-priority investments, a total of $2.4b over the forecast period, averaging $597 million a year," Willis said. 

She said that would go into health, education, infrastructure and defence and police.

Increased use of AI

Willis said over the next three to five years the number of agencies would be "significantly" reduced - with agencies asked to come up with proposals to “logically merge their existing activities around citizen-facing functions, using common technology platforms.”

“The overhaul will reduce the number of government departments, increase the use of AI [artificial intellingence] and other digital tools, and deliver significant savings,” she said.

Public Service Minister Paul Goldsmith said between 2017 and 2023 the size of the public service expanded from 47,000 to more than 65,000.

“That growth rate was nearly three times faster than the overall labour force, while back-office and support functions grew significantly faster than frontline service delivery roles," Goldsmith 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."

“Reductions will be achieved progressively over several years through digitisation, mergers, simplification of systems and processes and natural attrition,” he said.

Willis said the 55,000 target is about 8,700 fewer workers than in December 2025. 

Following the announcement in Auckland, Interest.co.nz asked Willis whether the Government had considered a lower or higher target before arriving at the 55,000 figure, which is based on population growth.

“When you look back historically for 22 of the past 33 years, including under previous Labour governments, public servant numbers were at or below 1% of the population. So our judgement was that’s a good benchmark to aim for and is achievable,” she said.

The agencies exempt from baseline savings were the NZ Defence Force, police, Oranga Tamariki, Corrections, Ministry of Health, Ministry of Justice, Ministry of Education (except tertiary functions), GCSB and SIS, Education Review Office, Crown Law, Ministry of Defence and the Serious Fraud Office.

'Extensive and significant'

Ahead of Willis' Tuesday afternoon speech, Prime Minister Christopher Luxon said the pre-Budget announcement on the public service would include some of the most extensive and significant reforms agencies have seen in decades.

"What we're doing here is we're saying, look, the public service has been organised in a certain way over the last 30 to 40 years, it's right and appropriate we take a good look at that and say, could we better organise?" Luxon told reporters on Tuesday morning.

"The second thing is that there's an opportunity to really leverage technology, all with the primary goal of being able to deliver more effective public services and be much more efficient with taxpayers' dollars, and ultimately also building out a public service where the best and the very brightest actually want to come and work here..."

"We've got some very serious reforms that we've got to get underway. It's pretty exciting work," he said.

Luxon said he suspected there would be job losses - some through attrition and others "over a period of time".

"The public service is not a make-work function. It's not here just to maintain jobs and maintain a position of how it was always run since 1995 in the same way," he said.

Asked if it would be some of the most extensive and significant reforms to the public service in the next few decades, Luxon said, "I do and I think it’s long overdue".

"What's tended to happen is successive governments have come in and they've just added to what we already do, rather than... step back and ask the question, is this a cluster of activity that actually should be working more together?"

"Is there a need for us to have all these backroom functions when we could do that much more efficiently?"

He expected the plan to make savings, but added the primary objective was a more effective and efficient public service.

Labour public service spokesperson Camilla Belich said it seemed as though in the "last budget women paid for Nicola Willis's budget, and this time public servants and their families are going to be paying for the government's budget".