Budget 2026: Could public service cuts be part of a hard-fought Coalition bargain?
Sunday, 24 May 2026
ANALYSIS: ‘Tis the season for Budget hunches, and Nicola Willis’ decision to green-light massive public service cuts opens up the possibility of a trade behind the scenes.
That’s if the savvy finance minister has managed to extract some concessions from ACT and the fiscal right for embracing an item that has been at the top of their wish-list.
Evidence suggests the proposed 12% cuts to the majority of government agencies, enabled in part by a greater reliance on AI, were cooked up in a hurry.
Previously, Willis had trodden what might reasonably be described as a middle path, whittling down government expenses without obviously breaking anything.
Read more:
Where might public service cuts fall? The ministries facing the knife
Willis unveils her audacious public service plan, but the real test is to come
But these cuts are a much bigger leap of faith.
There appears to be no-one in the Beehive with deep expertise in information technology or a clear understanding of AI’s potential to reduce public sector workloads.
Following the departure of technophile Judith Collins, no-one with an overt interest in the field, even.
Asked what sort of digital tools he envisaged would be used to achieve the public service efficiencies the Government was aiming for, Paul Goldsmith — who last month took over as Minister for Digitising Government — acknowledged he was “not an AI expert”.
“We have ministers who have a generalist understanding and receive advice from the specialists on the topic, so that's what I’ll be looking forward to receiving over the next few months.”
As others have observed, officials didn’t appear to have time to put together any convincing collateral around the AI opportunity.
No case studies or encouraging government white papers, for example.
Instead, all we seem to have is an ideological cliché.
“I would say that there are many more opportunities than we’re taking advantage of at the moment in the broader public service,” Goldsmith ventured.
“If you think of the private sector, they wake up every day worrying that [if] one of their competitors might be faster in the use of technology than they are, they’d lose market share. That sort of dynamic doesn’t exist in the public sector.”
Well, maybe.
But the private sector itself has struggled to achieve meaningful productivity growth in recent years — to the concern of institutions such as the Reserve Bank and Treasury — so it may not provide an entirely reassuring benchmark.
What remains very unclear is whether ministers have identified specific administrative functions that can genuinely be automated at scale, or whether AI is functioning more as a broad justification for savings targets already decided upon.
More will be known when the Treasury proactively releases its Budget advice in a few months, but it seems reasonable to conclude the genesis of the cuts was quite recent.
On April 23, Willis revealed that the Treasury had independently decided to take the unusual step of “reopening” its forecasts for the Budget, which were previously thought to be finalised.
Prior to doing so, its economic growth forecasts for next year and 2028 appeared oddly optimistic, given the potential for fallout from the Middle East to weigh on fuel prices and economic sentiment for at least a couple of years.
Willis will no doubt have been presented with a bigger hole to plug if the Government was to adhere to the Public Finance Act and plot a return to surplus by the end of the Treasury’s Budget forecast period in June 2030.
Even so, agreeing to cuts on such a scale could have given her leverage to secure policy concessions from ACT in particular.
Its party leader, David Seymour, celebrated the cuts as “just what the doctor ordered”.
There are probably plenty of concessions Willis might have wanted and possibly been able to extract in return.
There has been speculation she would have moved to break up the supermarket duopoly if ACT had not been so opposed last year.
And ACT appears to be the biggest coalition obstacle standing in the way of a raid on bank profits, which might work better as a crowd-pleasing Budget announcement.
In July last year, Willis revealed she had asked officials to consider the way banks were taxed in New Zealand, including “looking at issues such as the Australian major bank levy, which is something that we don’t have here”.
Seymour told The Post last month that copying the Australian levy was an interesting possibility, but “the Government should get back to surplus by managing its spending rather than finding new ways to tax people”.
So how about both, in a quid pro quo?
Certainly, Willis is too smart an operator to want the sole focus of the Budget in an election year to be persuading the public she has found a path to crawl over the line to a surplus in 2030, especially one likely to be increasingly littered with fiscal risks.
Will she have been able to use the cuts to negotiate a previously-locked prize from her increasingly fractious partners around the Cabinet table? We’ll find out on Thursday.