Defence Minister Jonathan Coleman said the decision was made at the end of November just after the election - before the new Government had been formed.
Dr Coleman said he had since asked the Chief of Defence Force, Lieutenant General Rhys Jones, for an assurance that he had got it right. "He has assured me he has."
The Government has required the Defence Force to cut its annual costs permanently by $350 million to $400 million, by 2015.
The cuts in allowances will apply to overseas personnel on postings to embassies, instructors, trainees and advisers.
They won't affect those on operations in places such as Afghanistan or the Solomons. And it won't affect salaries.
The allowances vary according to the rank of the person and where they are posted, the number of children with them, and what they are provided with in the way of accommodation. Someone with the rank of sergeant or equivalent with three children in a European country can expect to paid $1673 net a week in pay and allowances.
The pay won't be cut but with the planned cut in allowances, the same person will face a 20 per cent cut to $1334 a week net.
Anyone taking up an affected position from now on will be given the lower allowances.
But 78 of those currently posted are expected to still be in their posting on January 1 when the cuts kick in.
Dr Coleman said he had been advised that expenditure on non-operational post allowances had increased markedly in recent years and the payment of the expenses had got away from the original intent.
Defence believed staff were being over-compensated for being in relatively benign postings like Australia, Britain and the US.
"It's not meant as an extra perk or incentive. It is meant to be money that people are going to need."
Dr Coleman said there was a good case for the Foreign Affairs cost of living allowances and Defence allowances to be aligned because they were similar postings.
He said there could be future adjustments to the allowances, depending on where the Foreign Affairs allowances landed.
The Chief of Defence Force believed the new allowances met their remuneration principles of both fairness and equity and that people posted overseas were not going to be advantaged or disadvantaged with respect to their peers in New Zealand.
LEANER INCOMES
-The incomes of about 80 Defence Force staff on overseas postings will be slashed from January next year.
-Their living allowances are to be cut.
-Allowance cuts will apply to overseas personnel on postings to embassies, instructors, trainees and advisers.
-The move will save $5.6 million annually.
-The Government has required the Defence Force to cut its annual costs permanently by $350 million to $400 million by 2015.
