Treasury warns of ‘unsustainable’ Defence Force staff costs, but govt boosted wages anyway

New Zealand Defence Force personnel costs caught the ire of Treasury. Photo / NZDF

Officials at Treasury are frustrated at the spiralling costs of Defence Force salaries - despite the Force having a reputation for incredibly low wages.

The Government acknowledged those low wages this year with a funding boost worth $419.6 million over four years. Historically, some Defence Force staff have been paid less than the minimum wage.

But leading up to the announcement, Treasury and Finance Minister Grant Robertson were incredibly critical of the way the Force was funded - particularly when it came to the cost of staff.

In a letter to former Defence Minister Peeni Henare from 9 November 2022, Robertson wrote, “[a]s I have said in the past I am concerned about the growth in personnel costs over time and I have not seen a clear approach to managing these costs presented to Ministers”.

He went on to say that a “key finding of the 2019 Defence Baseline Review was that personnel expenditure has been persistently higher than agreed in the 2013 Defence Mid-Point Rebalancing Review (with full-time equivalents in 2018/19 being 2.0 per cent higher and average salaries 6.7 per cent higher than the planned track), and that the current trajectory was unsustainable”.

He said the Defence Force had been asked to “prepare a Workforce Strategy to place personnel expenditure on a sustainable path over the medium to long term, balancing people capability requirements with risks and including an assessment of rank and trade mix”.

Robertson said he “expected” that Workforce Strategy to “demonstrate that personnel cost increases could be largely funding through efficiency gains and prioritisation”, but despite his pleas, “this work has not yet been delivered”.

Defence Minister Andrew Little boosted funding for Defence Force staff. Photo / Mark Mitchell

A Treasury report from February 2023 found that the Workforce Strategy was actually produced in November 2021 and it identified $16 million worth of savings in backroom “civilian and contact workforces”.

Treasury reported, “we are not aware this [the Workforce Strategy] was provided to ministers”. It is not clear why the report, and its $16m of savings were not passed on to ministers.

The same paper said Robertson was now going to have a look at the Defence Force’s “operating model”, which was not fit for purpose.

This appears to be because the Force does not keep to Budget and expects the government to increase its funding whenever it gets into financial strife.

“NZDF has a history of expecting increased funding to cover its operating model, rather than adapting its structures and policies to live within existing baselines,” the report said.

The current Defence Minister Andrew Little told the Herald the issue was the force was “top heavy”.

“When I took on the defence portfolio there was a perception that NZDF was top-heavy,” Little said.

“I looked deeply into the portfolio and found that attrition was actually mostly affecting the medium to lower ranks.

“While NZDF was acquiring new recruits, these were offset by high numbers of skilled ranked service people leaving,” he said.

“That is why in budget 2023 the remuneration upgrade focussed on new recruits and skilled lower ranked service people,” Little said.

The paper said that future funding decisions would need to reflect the changing Defence environment.

The Government is currently in the midst of a Defence Policy Review which will look at what is needed from the Force and what the Force will need into the future.

Officials said a draft of the Defence Policy that went to Cabinet in March 2023 “indicates an intention to shift towards a more deliberate and proactive role for defence in shaping the security environment, given increasing geostrategic competition”.

Treasury said it was important not to make Budget decisions that were swiftly rendered out of date by the review.

Little said the “shift towards a more deliberate and proactive role for defence in shaping the security environment” did not mean a reduced role for the intelligence agencies, which he also oversees as minister.

“The Royal Commission [into the Christchurch mosque attacks] report found there was a lack of clarity at the strategic level about who was responsible for counter terrorism.

“It also found we needed to have more open and mature conversations as a country about national security.

“Ultimately our national security system is about much more than counter terrorism and we’ve had a lot of work underway to make sure that all parts of the system are better placed to deal with the threats we face, whether that be extreme weather response and climate change, increasing geostrategic tensions, espionage, or counter terrorism,” he said.