As Police and Corrections costs continue to mount, Treasury warns the Finance Minister and her Cabinet colleagues to tread carefully when considering any future law and order policies
Newly released Budget documents reveal the Government yet again had to top-up police funding just to keep the lights on, while the coalition’s tough on crime agenda is risking a cost blowout in the Courts and Corrections budgets.
But Police Minister Mark Mitchell says the police have come a long way since the coalition came into power when police were “going broke”, “at risk of breaching their appropriation” and had stopped hiring because costs were out of control.
Meanwhile, officials have warned Finance Minister Nicola Willis about the coalition’s practice of not considering funding for prison capacity when deciding on law and order policies. Essentially, Cabinet has been signing off the building blocks of its tough on crime agenda, without understanding the downstream financial impacts, adding increasing cost pressures to the already streamlined justice sector.
The documents released Thursday afternoon, among hundreds of other Budget 2025 papers, show the tension between the coalition Government’s tough on crime agenda, which has pushed up costs across the justice system, and the tough fiscal environment that has the finance minister seeking billions in savings across the public sector each Budget.
The documents show that from the outset WIllis asked Mitchell to ensure his funding bid – on behalf of NZ Police – included “an appropriate balance of reprioritisation and new spending, rather than being solely focussed on cost pressures”.
This was despite “Police’s view that it faces significant cost pressures”.
As early as September last year she was back to writing to ministers asking them to once again find ways to cut costs, without impacting crucial frontline services.
“We have made significant progress towards our fiscal objectives and started to embed a culture of fiscal discipline. However, getting the Government’s books back in order cannot be achieved through a single Budget; it requires a sustained, collective effort,” she told Mitchell in a letter.
Other documents show Treasury officials were sceptical about the savings and reprioritisations police managed to find ahead of Budget 2025, saying that they were short-term fixes and costs would likely climb back up in 2026 and beyond.
Despite both Treasury officials and Willis telling police that a $120 million top-up in last year’s Budget was a one-time deal to help keep the lights on (covering things like wages and basic infrastructure costs), the Government was forced to repeat that cost pressure funding this year – or risk the organisation’s ability to fulfil its basic law enforcement functions.
“Despite the current situation being caused by poor past financial management practices, we have recommended cost pressure funding at the same level as provided for 2024/25 in Budget 2024 because there are otherwise significant risks to Police’s service delivery,” officials said.
They also noted that the coalition promise of an additional 500 police officers “reduced the choices available to [NZ Police] to manage cost pressures in a sustainable manner”. (Personnel costs make up roughly 70 percent of police expenses.)
‘When I became minister, there’s there’s no doubt about the fact that police were going broke. They were at risk of breaching their appropriation. They’d stop recruiting police officers to try and save money, and the cost pressures had not been dealt with at all.’
The proactively released documents paint a concerning picture of the long-term financial situation at Police.
But Mitchell told Newsroom the organisation’s financial position had improved, while it was finally making some progress on growing officer numbers (100 new officers above attrition), and adapting to respond to coalition priorities around reducing organised crime and increasing beat policing.
“When I became minister, there’s there’s no doubt about the fact that police were going broke. They were at risk of breaching their appropriation. They’d stop recruiting police officers to try and save money, and the cost pressures had not been dealt with at all.”
The minister said he had been clear with police that like any big organisation, it should be constantly looking for efficiencies, while delivering “world-class public services”.
“I’m really confident that they’re doing that.”
Any savings and reprioritisations were not impacting frontline service delivery, he said.
Mitchell disputed Treasury’s assessment that the savings police had identified were short-term fixes, rather than long-term, sustainable cost reductions.
The documents also showed that justice ministers (Mitchell, Paul Goldsmith and Nicole McKee) had rejected some cost saving ideas put forward by their departments. These included reductions in constabulary staff, closures of rural police stations and regional courthouses.
In November advice specifically to Willis, Treasury officials recommended she reiterate to Mitchell her expectation that Police focus on fiscal sustainability rather than relying on new funding.
This included assuming no new funding for wage increases, particularly for employees, beyond 2026, consistent with the 2024 Government Workforce Policy Statement.
Mitchell said he had no knowledge of the expectation to freeze pay increases beyond 2026.
Last year, the police union and the Government had to call in an independent arbitrator after a year of unsettled pay talks. It led to the arbitrator siding with the Government, forcing police employees to take the offer on the table.
Police are due to enter a new round of collective negotiations next year.
Beyond the financial issues plaguing police, the Budget documents suggest tension between the coalition’s tough on crime approach and the downstream costs of putting more cops on the beat, sending more people through the courts, and locking up more people in prisons.
One of the key cost pressures identified by Treasury was the growing prison population, off the back of Government policies, including the Three Strikes Law and other sentencing changes.
The primary cost pressure for the justice sector was prison capacity, officials said, adding that the Government needed to manage the trade-offs between paying the costs that flow from having more people in prisons and building new prisons to increase capacity – like the new builds at Waikeria and Christchurch Men’s prison.
Former Prime Minister Bill English once described prisons as a moral and fiscal failure. And while it’s hard to know the exact cost per prisoner, those working in the criminal justice space estimate it costs between $150,000 and $190,000 to keep a person in prison for a year.
This year’s Budget shows the Government is now spending $1.71b billion a year on custodial services. That jumps to more than $2.14b a year when you add in those on community-based sentences, like home detention and parole.
Ahead of the Budget, Prime Minister Christopher Luxon was asked whether he was concerned about the level of Corrections spending or whether he had any limit in mind. Luxon said no. And on Budget day, Finance Minister Nicola Willis said this was the price to pay to ensure people are safer in their communities.
But these documents reveal Treasury officials had a different take.
“This volume pressure is largely non-discretionary given it is driven by operational police, judicial and parole decisions, which are impacted by government policy changes and ‘soft signals’ such as media attention,” officials said.
“The approach to date of agreeing to criminal justice policy changes and funding prison capacity separately means that Cabinet is being asked to make decisions without knowledge of the full financial implications.”
The ongoing pressure on the prison capacity made this approach “increasingly problematic”.
Aside from coalition commitments, or policy promises already made, justice sector ministers should only be putting forward policy proposals with prison population implications if they had “robust financial and regulatory analysis and funding, including reprioritisation options”.
“Proposed future changes to criminal justice policy which increase the prison population will need to be balanced against their associated costs and we recommend you ask that the fiscal impact across the justice sector of proposed policy changes is identified at the time policies are being considered by Cabinet,” officials told the Finance Minister.
Treasury staff also recommended focusing on ways to lessen the growth of the prison population.
One of the areas ripe for significant cost savings was in the remand population.
New Zealand has a high remand rate (about 44 percent), compared to similar jurisdictions (37 percent in Australia, 19 percent in the UK and 20 percent in Germany). These prisoners, who were yet to be sentenced, were often managed as higher-risk prisoners, meaning extra resources were needed.
Mitchell said the Government was investing in initiatives to increase the efficiency and timeliness of the court system, which would move people through the system faster. While also investing $80 million to extend rehabilitation programmes to those on remand – something that was now being rolled out across the prison network.
Beyond that, Mitchell was not considering other options to reduce the remand population, saying the previous Government’s prison population reductions transferred the risk back into the community. “That’s why we had such a massive increase in violent crime under the previous government.”
The previous coalition and Labour-led governments set up a programme to find efficiencies in the bail and remand systems, offering support to people who needed help completing bail application paperwork, and support in accessing appropriate housing for people to be bailed to – both things that had acted as barriers to people being remanded on bail (in the community). The previous governments did not alter the law or direct judges to alter the way in which they considered bail applications.
“I just want to be really clear that we’re uncompromising around public safety,” Mitchell said.
“But like any responsible government, every policy setting that we take through needs to go through a full Cabinet process and full financial scrutiny as well.”
The minister acknowledged the “enormous economic cost” of violent crime, as well as the “massive human cost”, before saying he was confident that the coalition was able to reduce costs across the board without impacting frontline services.
“The fact of the matter is … the whole country was going broke, and we had to do something about that move to make sure that we’re responsible; that we can still deliver the public services that we want to. We’ve got a big focus on frontline public services, but at the same time that has to be sustainable for us as a country.”
The tensions between coalition Government policies and the restricted financial environment was not isolated to the justice budget.
The documents reveal a finance minister and a Government looking for cuts and making trade-offs across the board, from her first meetings and letters exchanged with ministers.
And not all ministers – including Foreign Minister Winston Peters – took kindly to being forced to scale back their expectations for new funding.
Ultimately, Willis didn’t end up where she wanted to be, with the documents showing an $8.5b gap between costs and savings over the forecast period.
On the other big ticket items in the Government’s so-called Growth Budget, the documents showed careful consideration of societal and political impacts alongside the fiscal effects.
Inland Revenue officials were generally supportive of the plethora of tax changes the Government advanced in the Budget. Although they cautioned more radical changes to BestStart payments and Working for Families, such as total repeals, saying they could worsen child poverty. They said the final package balanced child poverty impacts with fiscal prudence and improvements to the functioning of the scheme.
On Kiwisaver, the Government received advice on a range of options. Treasury officials advocated for scrapping all government contributions to Kiwisaver schemes, rather than the halving that ministers ultimately decided on. Officials also supported the change to means test the remaining government contribution but recommended against the Government increasing employer contributions to create a “Kiwisaver switch”. They recommended taking more time to consider the long-term impacts of the final decision to allow employees to choose between a 3 or 4 percent matching contribution rate.
In February, officials advised the increased contributions were not likely to lead to greater household savings in the long run, as employers would simply respond by reducing wage growth.
“Increasing the minimum employer contribution rate to 4% would lead to an increase in labour costs for many businesses in the short-term. This increased cost will reduce profitability in the short-term at a time when the economy is still recovering. It is likely that an increase in labour costs could be enough to force some businesses to alter their hiring decisions or change their capital investment plans. This in turn could undermine elements of your growth agenda,” officials wrote.
“In the long-term, we would expect much of the cost of the higher employer contribution to fall on employees by way of slower wage growth. The exact level of pass-through could differ across industries and will depend how responsive employees and employers are to changes to wages and the benefit employees assign to the employer contribution.”
The Government’s flagship Investment Boost policy, to allow partial deductions on new business expenses of 20 percent in the first year, was strongly supported by officials.
Officials encouraged the Government to include commercial buildings, agricultural land improvements and mining and petroleum assets that have not generally been deductible in New Zealand or under such schemes internationally – advice the Government ultimately heeded.
Despite concerns raised by tax experts after the reveal of the policy about a possible fiscal blow-out, the documents don’t show officials ever considering capping the total value of the scheme, or the value of assets included in the scheme. Instead, officials argued the broad-based nature of the policy was one of its strengths and that large investments by large companies represented the vast bulk of capital investment in New Zealand. Limiting the scheme to small businesses would therefore significantly reduce its effectiveness.
