How to cut public sector jobs? A much more aggressive approach to AI

The government's recipe for cutting thousands more public sector jobs demands using AI much more. RNZ looks through 16 documents that led up to Nicola Willis's announcement in May that 8700 jobs would go.

The core public sector workforce has proven stubbornly hard to cut and earlier this year, at 64,500, was larger than when the government came in.

In April, officials were working on a new model and goal to trim it to 60,000 by 2029 when, three weeks out from the Budget Public Service and Digitising Minister Paul Goldsmith told them to "think about 55,000 as a starting point".

Officials came back to him saying 55,000 could exacerbate the risks to performance.

"We would advise extending the timeframe", say, by another two years to 2031, they told him.

Yet within days of that, the architect of the sector changes, Public Service Commissioner Sir Brian Roche, had backed the more aggressive 2029 timetable - and even advocated cutting jobs further.

"We remain open to a lower ... number," he wrote to Goldsmith in April, the recently released documents show.

As it was, 55,000 "will be challenging and will involve a higher risk tolerance from both ministers and chief executives", he told the minister.

But it should be done.

"It should be seen as a minimum so that as the transformation is implemented the full impact and value of AI is captured."

It would require a shift from jobs to technology, and reconsideration of how services were delivered, said Roche.

"It will mean a much [more] aggressive/targeted approach to AI.

"It will require chief executives, with ministerial oversight, to identify programmes that can be stopped. We have tried this before with very limited success."

But the payoff would be transforming a fragmented system that imposed "massive" costs on the economy into a streamlined, consolidated, digitised public service that, crucially, delivered better services, was the message.

It would be complex: Cuts in some places would have to be deep enough to account for growth in other service delivery - "front-line" - roles.

It would also be "noisy" in the public and media, said Roche, but he would strongly defend it.

"If it was my business and my money this is what I would do."

Election issue

Public services and how to afford them are being freshly debated in the election campaign.

On Wednesday, Labour contended on Morning Report's political panel that "fiscal restraint" had translated into public service cuts pushing costs onto New Zealanders.

MP Arena Williams said that though Treasury had already factored in "big cuts" to come, not even the department heads who had to make them knew what would go.

Goldsmith responded, "I'll tell you what we've cut, we've cut waste and there was an enormous amount of waste."

'This is what you have asked me to do'

The documents chart the advice primarily from the Public Service Commission to their minister, either Judith Collins or later on Goldsmith, from August to just after Budget 2026 in May.

RNZ had sought them since June but its OIA request was transferred and delayed.

Back in August 2025, Roche had been working for some time on a model to reduce the core public sector from 42 agencies down to 15-20 over three to five years "underpinned by common technology and a lot more AI".

"This is what you have asked me to do," he said ahead of meeting PM Christopher Luxon, Finance Minister Willis and associate minister Chris Bishop.

Four percent staffing growth was forecast for 2026, partly to meet government priorities. Upward pressure was coming from an expanding Corrections Department and other "customer-facing" departments like IRD. MSD, MBIE and Oranga Tamariki were others that had pushed up the headcount since 2017.

The non-core public sector had expansionist tendencies too, especially at Health New Zealand, "responsible for a large proportion of total expenditure" with its 80,000-strong payroll.

"We are seeking further assurance from Health NZ that they will not exceed their annualised projections," the Public Service Commission told the government just after the Budget.

Days before that, Willis had announced the cut in the core of 8700 roles by 2029 to end "a period of largesse under the last government", and castigated the sector's "dangerously slow take-up of digital and AI technologies".

Back to front

The documents show officials had by early May 2026 adopted the 55,000 target - 1 percent of the population, the same size as in 2017 - as well as a cap on core numbers.

A lot of debate and advice about the numbers and how to cut led up to this.

In November, officials discussed a cut to 57,400.

"However, this level of reduction in workforce size has not happened since the reform period [of the early 90s] and would entail risks to front-line services.

A cap sent a clear signal of intent but "a cap-only approach could lead to a reduction in the quality of public services, and potential regulatory failures". Robust fiscal levers were a better tool for shrinking things.

Other advice about the why and wherefore of cutting to 60,000 or 55,000 fill scores of pages over the months, though there is little detailed modelling of implementation, savings or the costs of using more AI.

Since 2024, the key message from government to the public has been that the cuts would target the back-office - managers, policy analysts, information professionals, ICT professionals and technicians, legal, HR and finance professionals - and not impact the front line.

The documents state by late 2025 the back office outnumbered the front line by 4500.

"However, many of these roles support frontline services indirectly," the Public Service Commission told ministers.

"Back-office reductions could therefore impact service delivery and the uptake of new technology if not carefully managed."

'Enabling deeper ... transformation'

A key part of the 'recipe' - a 4 May document about managing back-office cuts and implementing the transformation - was mostly blanked out on the grounds of protecting the confidentiality of advice.

It was written to ask Cabinet to agree to the 55,000 target by mid-2029.

In unredacted bits it said, "Meeting these milestones is ambitious ... It will require difficult choices and trade-offs to ensure these investments into service delivery are effectively offset by reductions in other areas.

"Altering targets in departments with substantial service delivery elements (such as Corrections and Oranga Tamariki) would have an outsized effect across the Public Service, which creates a significant risk to achieving the cap."

It said a medium-term plan was required.

"We also need to establish a process for enabling deeper public service transformation."

Figuring the savings

Willis in May gave an explicit forecast of the 8700 job cuts saving $597m a year or $2.4b by 2029.

That figure does not occur in the 16 documents.

These major on saving $103m a year for every 1000 jobs shed, minus $52,500 per redundancy - or half a billion dollars total.

While the redundancies are a one-off cost, the savings from sticking at 55,000 would continue on, as long as spending externally on contractors and consultants did not reverse its slide, to compensate.

The papers do not model how many jobs AI might remove or enhance services while they do that.

They do not delve into how much the AI rollout will eat out of savings - some commentators have warned AI developers will likely ramp up the price of tokens and licensing once competition sifts out the winners.

Rather, officials said the exact savings were still to be determined following detailed decisions on implementing the transformational elements.