Health Minister Nicola Willis fronting the media after the resignation of RBNZ Governor Adrian Orr. Photo / Mark Mitchell
Finance Minister Nicola Willis has told the Herald she was “not happy” with the Reserve Bank accumulating tens of millions of dollars of unspent money - only to plan on spending it all in 2025.
“No. I wasn’t happy with the Reserve Bank accumulating large underspends for future use and the fact it was able to do so demonstrates the previous government wasn’t focused on getting value for public money,” Willis said.
The story leading to this revelation began on Wednesday, when Willis proudly proclaimed that the Reserve Bank’s new funding deal with the Government would cut its average annual spend by 25% from its 2025 budget.
“The new agreement allocates the bank operating expenses of $750 million and capital expenditure of $25.6 million for the period.
“That equates to average operating expenditure of $150 million a year, 25 per cent less than the bank’s $200 million operating expenses budget for the current financial year,” Willis said.
The statement precipitated the scratching of some of the pointier heads around town. To preserve its independence, the bank negotiates five-year funding agreements with the finance minister, rather than coming back each year for the annual budget cycle. The bank’s last agreement, inked in 2020, was amended in 2023 to reflect the bank’s increased responsibilities.
The amended agreement had the bank spending $149m in 2024/25 – not $200m. If the true sum of spending in 2025 was $149m, then the bank’s next five-year agreement would have the bank’s annual funding roughly stand still, rather than being increased or decreased.
Questions were asked of Willis and the bank.
Early Wednesday evening, the bank confirmed what had happened.
In 2020, the bank had its annual funding nearly doubled relative to its last five-year agreement.
Much of that money was not spent – despite the bank negotiating an increase in funding in 2023. Each year, the bank underspent the money the Government had given it.
By 2024, the bank had underspent its 2020 agreement by $49m, according to the bank’s annual report.
When 2025 rolled around, instead of banking that unspent money, the bank appears on track to spend almost all of it - although the precise figure is unclear, the bank’s final tally will be obvious when the fiscal year ends at the end of June.
According to a Cabinet paper released by Willis, the bank’s operational spending shot up from $158m in 2023/24 to $200m in 2024/25 – an astonishing increase of $42m, a sum of money that as recently as 2019 would have equated to more than 80% of the bank’s entire annual funding.
Several areas of funding increased dramatically in the last year. Spending on financial stability went from $13m in 2020/21 to $30m in 2023/24 to $48m in 2024/25.
The bank’s people and tech spend went from $42m in 2023/24 to $47m in 2024/25, and the spending on info, data and analysis went from $9m to $14m in the same period.
Willis told the Herald she had made changes to ensure this could not be repeated.
“To prevent that happening again, the new 2025-30 FYFA [five-year funding agreement] stipulates that the bank cannot apply an underspend to a subsequent financial year without agreement between the bank and the minister of finance.
“To that end, not only does this funding agreement represent a tighter overall fiscal envelope for the bank to work within, but it ensures better financial control across years, such that if the bank underspends in any financial year it cannot splurge at a later date,” Willis said.
Complicating the “funding cut” story is the fact that some of the spending that contributed to the $200m figure has now been excluded from the baseline number in the bank’s next funding agreement. In other words, spending lines that got the bank’s spending to $200m have not been cut to get to a new $150m figure – the spending will continue, it’s just been excluded from the new funding agreement.
“Some of the costs excluded are yet to be determined, such as capital spending on future projects,” the bank said.
On Wednesday, Willis revealed the bank had originally asked for $1.03 billion in funding over the next five years – a very large increase.
In a Cabinet paper, Willis revealed that a trimmed-down proposal of $750m was submitted in March, the month Orr resigned.
Willis’ office confirmed on Wednesday that this proposal was submitted on March 14, nine days after Orr’s abrupt resignation.
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.