Government’s Microsoft bill balloons as tools become widespread

Friday, 24 July 2026

Government spending on Microsoft software through an “all-of-government” purchasing arrangement more than tripled over seven years to total $306 million last year, figures released by the Public Service Commission show.

The commission, which has been responsible since April for digital initiatives across the public sector, said the figures excluded Microsoft software bought outside New Zealand Government Procurement's all-of-government contract. It could not estimate that additional spending.

It made clear it currently had very limited information on agencies’ total spending on Microsoft or other software, but expected to improve that.

Spending on Microsoft software through the all-of-government contract totalled $307m in the nine-month period to end of March this year, suggesting another big increase in the full-year spend is on the cards.

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Industry and government sources said many software vendors had been hiking their prices in recent months by integrating AI features into their products by default and then charging customers extra for them.

The Public Service Commission said one factor behind the bigger government bill was an increase in the number of agencies that bought Microsoft products through the central contract.

That rose from 118 in 2018 to 169 in 2022, but has since dipped back to 166.

Another was an increased take-up of Microsoft Teams, Copilot and the company’s “enhanced security tools”.

“This trend reflects broader investment in digital services and cloud technologies, which are assisting agencies to improve service delivery, strengthen security, and deliver services more efficiently,” it said.

“Some of these costs have been offset by reductions in areas such as infrastructure, telecommunications, and legacy systems.”

Don Christie, director of Catalyst IT, an open source software company that competes with Microsoft and other suppliers, said many government software purchases would bypass the all-of-government contract as they would “be hidden under reseller and direct-to-supplier engagements”.

But he said the large increase in Microsoft spend going through the contract, from $89m in the year ending June 2018, supported Catalyst’s long-held view that “once these big tech companies lock you in it’s just a money churn”.

“I can’t imagine there are productivity or delivery gains that justify such big leaps.”

Christie argued Microsoft was essentially leveraging the popularity of Excel, which he described as the best spreadsheet product available.

“Everything else seems to flow from that, from Office365 and Azure to AI.

“If we took a more strategic view of Microsoft use, we would be focusing on their compelling offerings — of which there are undoubtedly one or two — but also following the French example of ensuring that doesn’t drive a massive commitment to the rest of the stack and potential loss of taxpayer dollars for very little return.”

Catalyst published a “digital manifesto” last week that included a call for the Government to make more use of open source software.

The French government is believed to spend about €1.2 billion (NZ$2.4b) annually on Microsoft software, but in April it announced a plan to reduce its dependence on the company’s products in a bid to improve what it described as its “digital sovereignty”.

Among its goals are migrating 2.5 million government computers from Microsoft Windows to Linux and seeking to replace collaboration tools such as Microsoft Teams, Zoom and Google Meet with locally-developed and open-source alternatives.

Responding to Christie’s comments, a Microsoft spokesperson said its role was to help “organisations of all sizes, across the public and private sectors, modernise their systems securely and effectively to improve productivity and deliver value”.

Microsoft also pointed to research it commissioned from Australian consultancy Mandala Partners that said accelerating cloud migration could “save the New Zealand government $360m every year to 2035 – a 14% reduction in IT costs”.

A report released by the commission earlier this month said central agencies had limited visibility of what agencies were actually spending on technology.

One of the reasons the Government Digital Delivery Agency was transferred to the Public Service Commission in April was to improve central oversight of digital investments, a spokesperson said.

“It’s part of the Government's wider programme to modernise the public service, reduce duplication and ensure agencies are getting value for money from digital investments.”

The Public Service Commission initially refused an Official Information Act request for a breakdown of the public sector’s top 10 software vendors, by spend, along with information on how that had changed over time, indicating that was unknown — before providing the partial data.

AoG contract ‘top 10’ in 2025

Microsoft, $306m

Spark, $197m

Datacom, $120m

One NZ, $64m

Fujitsu, $30m

NTT, $26m

AWS, $21m

Oracle, $19m

2degrees, $10m

Deloitte, $10m