Reserve Bank loses millions in funding under new deal with Government

Reserve Bank of NZ acting governor Christian Hawkesby. Photo / Mark Mitchell

The Reserve Bank will have its funding dramatically reduced from current levels over the next five years after reaching a new funding deal with the Government.

In a statement, Finance Minister Nicola Willis said the deal worked out at about $150 million in annual operating spending - 25% less than the $200m budgeted for this year.

The $200m figure for the 2025 year is new - the bank’s 2023 amendment to its 2020 funding agreement budgeted just $149m for the 2024/25 year. The Reserve Bank and the Minister of Finance’s offices have been approached to clarify.

In order to preserve its independence, the Reserve Bank is kept out of the annual government budget cycle. Instead, the bank’s board negotiates five-year funding agreements with the finance minister.

Whether the government actually cut the bank’s spending is contentious. The bank’s 2020 funding agreement, negotiated with the previous finance minister, Grant Robertson, was for $575m, about $175m less than Willis’ agreement.

But the bank went back to Robertson for more money in 2023, negotiating an extra $312.7m over those two years - an average of $156m a year, which is slightly higher than the average spend under Willis’ agreement. The bank wanted extra money to implement new responsibilities under the Deposit Takers Act 2023.

Willis said that the bank had initially requested $1.03b over the next five years.

“Treasury advised me that that amount did not represent good value for money,” Willis said.

Instead, the bank will get operating funding of $750m and capital funding of $25.6m for the period.

The bank’s spending has grown dramatically in recent years - partly as it took on new functions. The 2015 funding agreement had the bank receiving about $50m a year in operating spending - a quarter of what is budgeted for the current year.

“The Reserve Bank has grown hugely in recent years. Fulltime equivalent staff numbers increased from 255 in the 2017/18 year to 660 in January this year,” Willis said.

“Benchmarking analysis performed by the Treasury shows that several of the Reserve Bank’s non-legislative functions, particularly in the People and Communications teams, appear overstaffed,” she said.

Negotiations over the funding agreement had been one of two sore points between Willis and former Reserve Bank governor Adrian Orr, who abruptly quit in March, the other being the Government’s desire to see capital requirements for retail banks made less onerous.

A recent Official Information Act release, which covered Willis’ talking points after Orr’s resignation, said the funding fight was not the cause of Orr’s resignation, which remains a mystery.

A Cabinet paper, released by Willis, provides some insight into the negotiations. In September 2024, the bank submitted a proposal for $1.03b in funding over the five years, comprised of $981m for operating expenses and $50m for capital.

In March 2025, the month Orr resigned, it submitted a revised proposal for $750m in operating expenses and $36m in capital.

Treasury thought this could be trimmed down even further, proposing just $720m in operating expenses and $6m in capital.

The bank’s chair, Neil Quigley, told Willis that the $720m proposal would “put at risk the Reserve Bank’s delivery of current and incoming statutory requirements” and would risk the bank’s ability to support the government’s drive for competition and efficiency in the banking sector.

Willis’ paper says she discussed these concerns with Treasury and decided to go with the higher, $750m figure on the basis of the risks identified by the bank.

Thomas Coughlan is the NZ Herald political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.