Photo: NZDF / Supplied
The Defence Force's (NZDF) operating deficit is in danger of hitting $360 million next year, putting more jobs at risk.
The NZDF and Defence Ministry are fronting at Parliament today for scrutiny week, but RNZ can reveal they spelled out the worsening state of the financial situation to staff late last week, despite a year of "austerity" measures.
The Public Service Association (PSA) said NZDF had told staff that it "is looking for savings of $360m next financial year in operational costs, with $50m to be met from workforce savings".
This endangered national security, the union said.
A $360m operating deficit is more than double its $158m in the past financial year.
Defence also faces an estimated $260m of cost over-runs on a handful of its biggest capital projects, including repairs of decrepit housing.
The over-runs prompted Treasury to warn the government: "There is an urgent need to resolve the DCP [Defence Capability Plan] and long-term investment strategy, and potentially the need for additional delivery assurance measures going forward."
Defence Force operating deficit may hit $360 million
The warning was delivered in June. The plan is still with Minister Judith Collins.
The NZDF did not comment on RNZ's questions about the 2025-26 deficit, outlined by its chief financial officer on Thursday, who said -behind closed doors - that enormous cost pressures were continuing.
One close observer speculated that the army might now move to reduce its two infantry battalions down to one.
Collins told RNZ that the defence force had to live within its means.
"I am aware of the significant cost pressures the New Zealand Defence Force is currently facing.
"I would expect the NZDF will be working hard to live within the budget and addressing its cost pressures using existing resources," she said in a statement.
Last month, the minister declared in Parliament: "I will never leave defence to be defenceless, like that previous government did."
This was in rebuttal to a Labour attack on funding levels, that it said were so low they had spurred strikes by defence civilian staff over a zero percent pay offer.
In response, Collins invoked a rarely-used power to let the armed forces fill the roles of security, firefighting and other roles hit by the action.
Collins has said she had secured the Defence Force an extra $450m for operating costs in the budget. However, NZDF said in internal reports it got no funding for cost pressures in Budget 2024 and baseline funding dropped $140m. In attempts to recoup $130m, it began a restructure in September to find the final $30m in savings.
The NZDF had no option but to adopt a "delivery and decline" strategy and "austerity" measures, it said internally in June.
Headquarters looked at cancelling flu vaccinations for civilian staff, having the Air Force band play at fewer graduations, and "fewer gun salutes".
The current financial year hit a unique issue when the $100m Manawanui naval vessel sank off Samoa in October, after the crew left the autopilot on.
About 200 civilian staff have left the NZDF so far, many through voluntary redundancy. Many of the 3300 remaining are engaged in strike action.
A June report said civilian cuts would lead to "organisational fragility across a number of areas".
The PSA blamed the $360m deficit on underfunding by the government.
"It's a dangerous choice made by the government," said assistant secretary Fleur Fitzsimons.
"The government is favouring tax relief for landlords over national security and a combat-ready defence force supported by civilian personnel."
The NZDF's regular force shrank by 1110 full-time jobs over the past three years, due to "extremely high" attrition.
In its annual report, it blamed the $158m operating deficit in 2023-24 on "the current global situation including ongoing conflicts and inflation, causing supply chain issues and large increases in other operating expenses".
Fuel costs reached $30m, property maintenance was $51m and "platform" maintenance cost $37m.
It is not clear how high the operating deficit currently is.
Defence also has five projects in the top 10 for cost pressures, posing a headache for the government and Treasury when it came to a fraught investment management situation across many agencies.
Six infrastructure investments had "a delivery budget of $262 million, but are reporting cost pressures of $538m, or 205 percent of budget", Treasury said in June.
The Ministry of Defence told Treasury it needed to update this figure, which was on the high side.
This was part of more than $2 billion in cost pressures, with defence and NZTA having the worst.
Defence - along with Kainga Ora and the Education Ministry - was slow on delivering infrastructure.
It currently has more than 50 capital projects, and while 80 percent were still within budget, less than six in 10 were on time. Treasury also noted the defence force's planning for big projects was too rushed between early and later business cases.
The Defence Force faced the problem of "historic underinvestment", coupled with routinely diverting capital funding to more pressing operational needs, it said.
This has afflicted its upgrade of housing - a "deferred spend bow wave continues", with no planned maintenance undertaken on the defence estate, a report pre-Budget said.
An eight year-long $3 billion project to upgrade the estate on nine bases has faced continual hurdles.
The Defence Force earlier told RNZ that a plan for 50 new homes for servicepeople's whānau at Waiouru was still in the setting up phase, under an initial $75m project.
Others projects under cost pressure include a double-pronged $175m effort to upgrade Ohakea airbase and a $67m operational and regulatory aviation compliance sustainment project.
There is no relief in sight. The ship fleet is old and needs renewing, as do the maritime helicopters, which is looming as one of the Crown's most expensive investments in the next decade.
Meantime, a "workforce programme investment proposal" needed to "provide greater clarity", Treasury said.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.