Reserve Bank Faces 25% Budget Cut Under New Five-Year Funding Agreement

Minister Willis stated that the Reserve Bank had initially proposed funding of $1.03 billion for the five-year term.

In a significant move aimed at driving greater fiscal responsibility and cost efficiency, the Government and the Reserve Bank of New Zealand (RBNZ) have reached a new five-year funding agreement that will reduce the bank's annual operating budget by approximately 25 percent starting from July 1, 2025.

The revised agreement, announced by Finance Minister Nicola Willis, will allocate a total of $750 million in operating expenditure and $25.6 million in capital expenditure for the Reserve Bank over the next five years. This marks a substantial decrease from the bank’s current annual operating budget of $200 million, bringing it down to an average of $150 million per year.

Austerity Measures in Focus

Minister Willis stated that the Reserve Bank had initially proposed funding of $1.03 billion for the five-year term. However, this figure was deemed excessive by the Treasury, which advised that it did not represent value for money, particularly given the Bank's recent growth in staffing and expenditure.

“The new five-year agreement reflects the need for all government entities to identify cost savings and demonstrate value for money,” said Willis. “Both the board of the Reserve Bank and the Treasury are of the view that the new expenditure limits are appropriate.”

This funding reduction is part of a broader effort by the government to rein in public spending and ensure accountability in the use of taxpayer funds. It places the Reserve Bank in line with other state entities being called upon to tighten their belts amid fiscal constraints.

Growth and Efficiency Concerns

Over recent years, the Reserve Bank has undergone a significant expansion. Full-time equivalent staff (FTEs) have increased from 255 in the 2017/18 financial year to 660 as of January 2025 — a rise of over 150 percent. Treasury’s benchmarking analysis has flagged concerns about overstaffing in some of the bank’s non-legislative areas, particularly within the People and Communications teams.

While acknowledging the importance of a well-resourced central bank, Willis emphasized that rapid growth in staffing and internal functions must be balanced with a commitment to cost-effectiveness.

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

Protecting Institutional Independence

The funding arrangement also underscores the importance of maintaining the Reserve Bank’s institutional independence. Unlike most other government agencies, which are funded annually through the central Budget process, the RBNZ operates under a unique model whereby it negotiates five-year funding agreements directly with the Minister of Finance, guided by Treasury advice. This approach is designed to insulate the central bank from short-term political influence while still ensuring accountability.

The new agreement, which comes into effect on July 1, 2025, is expected to prompt internal restructuring within the Reserve Bank, potentially leading to reductions in non-core staffing and a more streamlined focus on its statutory responsibilities — including monetary policy, financial stability, and supervision of the financial system.

Implications Ahead As the Reserve Bank adjusts to the tighter funding envelope, observers will be watching closely to see how it balances operational effectiveness with cost containment. The agreement sends a clear signal that while independence is preserved, fiscal discipline remains a priority across all branches of government — including the central bank.

Further details about how the Reserve Bank will implement these cost reductions are expected to emerge in the coming months as planning begins for the new financial year.