The central bank has negotiated an increase in its annual average spend, despite having to slash spending by up to 25% in the next financial year

CORRECTED*

The Reserve Bank of New Zealand (RBNZ) will reduce its spending by 25% relative to the current financial year, even after negotiating a $30 million budget boost in a new funding deal with Finance Minister Nicola Willis.

The new five-year agreement allocates $750 million for operating costs and $25.6 million for capital expenditure. This is a 4.3% increase from the $719 million operating budget for 2020–2025 period and would allow RBNZ to spend an average of $150 million a year. 

Willis said this new allowance would require the central bank to cut its spending by 25% in “the coming year” as it had budgeted $200 million for the year ending June. 

However, RBNZ’s annual report shows it has been spending an average of just $127 million over the past five years. It spent just $158 million in 2024 and had a cumulative underspend of $49 million, which it planned to spend in the 2025 year.

While the bank may have to reduce its spending from $200 million in 2025 to $150 million in 2026, this would be a one-off change due to unusually high spending.

RBNZ’s $719 million funding across the 2020–2025 period was made up of an initial agreement of $640 million, followed by a $79 million top-up in July 2023. This budget would be equivalent to roughly $900 million if adjusted for wage inflation today. 

Willis said the RBNZ board asked for a total five-year budget of $1.03 billion dollars while Treasury said just $720 million would be sufficient. She ultimately went with $750 million after the board warned it would need another $30 million to meet all its statutory obligations. 

The RBNZ has the discretion to allocate its total allowance, but Willis pointed out that the bank may be overstaffed in its “non-legislative functions,” especially within its communications team.

“The new agreement will ensure that the Reserve Bank has adequate resources to fulfil its legal responsibilities while promoting heightened cost efficiency,” she said in a statement. 

Ballooning bank

The central bank’s headcount has more than doubled since 2018, partly to strengthen the organisation, which some felt had become too lean, and to support new initiatives.

Since then, the Reserve Bank has taken on numerous new responsibilities, including tougher regulations for banks and insurers, establishing a deposit insurance scheme, exploring digital currencies, and upgrading its cash handling and cybersecurity operations. These changes have meant hiring more staff and building new teams to do this extra work.

RBNZ board chair Neil Quigley recently told Parliament that the staff increase was necessary to manage the growing workload from designing and implementing various reforms. He noted, however, that the higher headcount may not be needed long term.

In a press release, Quigley said the new funding arrangement offers the bank an opportunity to reshape itself for the future.

“Our priority in the coming months will be to work with our people to redesign our way of working to optimize our resources while continuing to deliver on our mandate”.

“We remain focused on ensuring economic wellbeing and prosperity for all New Zealanders. To achieve this, we will need to look closely at our capital and operational expenditure, as well as our spend on personnel.” 

Count on the critics

James Ross, a spokesperson for the Taxpayers’ Union, criticised the funding deal, claiming it represented a significant increase from the previous period.

“$775.6 million is 21% higher than the last five-year agreement back in 2020, and 139% higher than the one before that in 2015. Costs are still skyrocketing,” he said. 

However, this overlooks the rapid wage inflation and additional responsibilities given to the bank over the past five years. 

In a press release, the Act Party party leader David Seymour welcomed the funding cut, suggesting the bank should consider laying off its nine staff members working on inclusion, Māori issues, and climate change.

“ACT's hope is that a leaner, less distracted Reserve Bank will better deliver on its primary goal of fighting inflation,” he said in the release.

*An earlier version of this story incorrectly reported RBNZ's budget had been cut 25% and significantly overstated the value of the 2020–2025 funding agreement, which resulted in multiple comparison errors.