Faster cloud adoption could save NZD $3.6 billion for NZ government

A new report has found that accelerating the pace of digital government in New Zealand could lead to significant cost savings and new opportunities for improved public service delivery.

The research, conducted by Mandala Partners and commissioned by Microsoft, reveals that increasing the speed of cloud adoption within the public sector by five years could save the government NZD $3.6 billion by 2035. The report, entitled "Unlocking the Productivity Dividend of Digital Government for New Zealand", also estimates that such a move could generate NZD $2.3 billion in productivity gains driven by artificial intelligence (AI).

Falling behind

Despite New Zealand being one of the earliest adopters of a Cloud First policy for government agencies in 2012, the report notes a decline in global rankings for digital government, dropping from ninth to sixteenth. The findings indicate that challenges such as complex procurement rules, shortages in digital skills, and cultural resistance within government have contributed to the slow progress.

According to the report, more than two-thirds of government systems continue to operate on older technologies that are not only expensive to maintain but may also present cybersecurity risks.

Potential cost savings

Mandala Partners' Tom McMahon, who authored the research, emphasised the scale of potential savings:

"Accelerating cloud migration would save the New Zealand Government $360 million every year to 2035 - that's a 14 per cent reduction in IT costs. This efficiency could free staff up to focus on delivering innovative and effective public services," said McMahon.

The report points out that the current government operating allowance for 2025 stands at NZD $1.34 billion. By accelerating public cloud adoption, savings equivalent to increases in taxes or reductions in services could be realised without the negative impacts typically associated with those measures.

It further notes that on-premises infrastructure can be up to ten times more costly than comparable public cloud solutions, primarily due to the need for specialist IT support and the limitations of older systems.

Support for frontline services

Vanessa Sorenson, Managing Director at Microsoft New Zealand, highlights that modernising government IT infrastructure does not just save money. It also creates an environment where public agencies can utilise AI tools at scale, ultimately transforming service delivery. For instance, a government agency trialling Microsoft Copilot reported users saving an average of ten hours per month, with 76 per cent noting increased productivity and 79 per cent experiencing higher work quality.

The report also discusses the risks associated with outdated technology, especially in relation to cybersecurity. Nearly 40 per cent of nationally significant cyber incidents in recent reports have affected the public sector. In one unnamed agency, a substantial proportion of databases and servers use unsupported software, increasing vulnerability to attacks and outages.

Mandala's research estimates that shifting to cloud services could help avoid NZD $121 million in cyberattack-related costs over the next decade, alongside reducing disruption to operations and improving data protection for citizens. The report asserts that these savings could be redirected towards frontline service improvements.

Practical examples

Christchurch City Council's Chief Information Officer, Anurag Madan, described the recent migration of 90 per cent of the council's servers to Microsoft's Azure public cloud. He explained that the presence of local hyperscale providers has removed previous data residency concerns and enabled the council to better understand citizens' needs using a combination of cloud and AI technologies.

"Our recent cloud migration has opened opportunities for the council to better understand our citizens' needs using modern offerings like Fabric and AI from the Microsoft platform in conjunction with our core platforms. We're now looking at how we can map residents' journey through our platforms and services and generate insights to improve the services the Council offers and people's experiences engaging with us," Madan said.

In addition to financial and operational gains, the adoption of public cloud technology supports New Zealand's environmental objectives. The report suggests a potential reduction in the public sector's carbon footprint by 11 per cent-comparable to removing 14,000 cars from the roads.

The demand for cloud services is also expected to strengthen local digital infrastructure, including data centres and network investments, while fostering digital skills development within the government workforce.

Addressing challenges

The Mandala report recommends building partnerships among agencies, academic institutions, and cloud providers to address skills shortages and spread the costs and risks associated with cloud migration. By following examples such as the New South Wales Government's collaboration with Microsoft to train public servants in AI, cybersecurity, and cloud computing, agencies in New Zealand could achieve similarly broad benefits.

Procurement processes were highlighted as a significant area for reform, with the report advocating for aggregated purchasing and centralised frameworks to streamline cloud migration. The extension of responsibility for digital procurement to the Government Chief Digital Officer was cited as a positive development.

The report also recommends allowing agencies to adopt flexible cloud models funded through operational rather than capital expenditure and strengthening governance to establish clear targets and address cultural barriers to cloud uptake.

The findings suggest that accelerating the commitment to cloud first strategies could create substantial benefits across New Zealand's public sector, impacting both cost efficiency and service innovation for years to come.