How much would the Government save from public sector job cuts and redundancy payouts?

Officials estimate the Government saves $103 million every year on salary costs from 1000 public sector job losses, but redundancy payouts could eat into a significant chunk of those savings.

A Public Service Commission report given to Judith Collins in November 2025, when she was Public Service Minister, reported the average redundancy cost was $52,500 per person.

It means if 1000 people were made redundant in one year and everyone got the average redundancy payout, net savings would be $50.5m for the first year.

Collins was told not all reductions in staffing would come by way of redundancy.

Fleur Fitzsimons, national secretary for the Public Service Association union, said people should “look at what this actually costs” as the average redundancy payout was “more than half the price of simply keeping that person working for a year”.

“Taxpayers handed out $80.4 million in redundancy payments in 2025 alone, the highest figure on record. This is a waste of money, these public servants do important work and have more to give New Zealand,” the unionist said.

Modelling, which the Commission advised was up-to-date, comes as the Government is working to cap the number of public service workers at 55,000 fulltime equivalent roles, or FTE, by July 2029.

The report gave four options of potential ways the Government could reduce bloat in the public sector, and came before a cap on fulltime equivalent roles was announced.

At the time, officials gave the options of a targeted reduction in “back office” staff but warned it would be complex to implement. Officials recommended a cap across “all departments and departmental agencies” as it allows for central co-ordination.

The report considered whether Crown entities should’ve been considered as part of the workforce cap, but officials noted cost savings would be better realised through “fiscal restraint” in this area. The NZ Police and NZ Defence Force were included in this option.

A fourth option was to utilise an existing cap on personnel expenditure to balance staffing levels with wages.

The public service grew from 47,252 in 2017 to a December 2023 high of 65,699. As announced prior to Budget 2026, the Government is seeking to cap that number at 55,000 by July 2029.

At the time of the report, Collins was told the Public Service Commission and the Treasury did not recommend use of a cap. “There will be downward pressure on public service FTEs through existing fiscal settings and levers and that a cap, if not managed well, could incentivise inefficient decisions and undermine service delivery,” the report said.

It also said economic conditions were similar to when a prior cap was imposed: “New Zealand is currently experiencing difficult economic conditions, as mirrored by the global financial crisis which began in mid-2007″.

The PSA union criticised the Government’s workforce cap, saying the Commission’s own report admits “little expert agreement” on the right amount.

Fitzsimons added the Government was “hell bent on cutting jobs regardless of the real cost, wasting money that could have gone straight into the services people rely on, instead of out the door with the people who deliver them”.

Public Service Minister Paul Goldsmith has said New Zealanders expect a public service that grows smarter, not simply larger.

“Looking to the future, we want to ensure we’re investing in a high-quality public service that’s modern, focused, productive, and financially sustainable over the long-term, with a core focus on frontline delivery.

“Through careful thought, this overhaul will reduce the number of government departments, increase the use of AI and other digital tools, and deliver significant savings,” Goldsmith added.

Azaria Howell is a multimedia reporter working from Parliament’s press gallery. She joined NZME in 2022 and became a Newstalk ZB political reporter in late 2024, with a keen interest in public service agency reform and government spending.