According to previously unreported data, provided to Reuters by the defence minister, proposed defence spending will fall to $NZ4.95 billion ($A4.52 billion) for the year that ends in June 2025. This year's defence budget was $NZ5.3 billion.
The new budget, to be presented on May 30, would put New Zealand's defence spending at 0.9 per cent of GDP, down from one per cent in the current year, according to the defence force.
The cuts come as recent government reports have warned about old equipment, and the military has struggled to hire and retain personnel. Alongside those challenges, the government wants to improve the state of NZ's armed forces and take on more regional and global missions - as well as investigate a bid to join the AUKUS defence pact.
"I have been consistently clear that Defence will need more funding and am committed to supporting Defence," Defence Minister Judith Collins told Reuters in an email.
Collins added that big decisions on capital spending would be made after the completion of a Defence Capability Plan in June.
The cuts put New Zealand at odds with many of its traditional partners, such as Australia and Japan, which are ramping up spending in response to China's growing military presence in the region.
Japan, which spent roughly one per cent of GDP on defence as recently as 2022, will hit about 1.6 per cent next year and aims to reach two per cent by 2028. Australia will go from two per cent to around 2.4 per cent over the next decade.
New Zealand Prime Minister Christopher Luxon has worked hard to increase international engagement since taking office, including sending a maritime security team to the Red Sea. But falling revenue and rising debt have hamstrung the country's ability to boost defence spending even as it says it is concerned about China's growing presence in the Pacific.
The government has said it wants to cut spending on average by 6.5 per cent to 7.5 per cent across all agencies.
Three of the Royal New Zealand Navy's nine ships are already stuck in port for want of crew. The Air Force's Boeing 757-2K2s regularly break down, and in March, Luxon had to take a commercial jet to an ASEAN summit after his plane was grounded.
In February, outgoing Chief of Defence Air Marshal Kevin Short estimated that the country was just over $NZ5 billion behind in defence spending from where it was projected to be in the 2019 Defence Capability Plan.
He told a parliament committee this year that "readiness continues to be one of the New Zealand Defence Force's greatest challenge".
NZ's lagging military spending and ability will damage its chances of joining a technology-focused part of the AUKUS defence pact, diplomatic sources say. The government is in the midst of discussions on what joining would entail.
Australia, Britain and the United States signed the pact in 2021. At its core is a plan to help Australia build nuclear-powered submarines, but a second stage to develop other military technology, such as hypersonic missiles, is open to more countries.
Diplomatic sources say prospective joiners need to bring money, technology or industrial capacity to the table to justify the extra complexity that comes with adding members.
That puts New Zealand at a disadvantage, according to a source in NZ government.
"You need to show some money," said a diplomat from an AUKUS country based in Australia. Both sources declined to be named because of the sensitivity of the matter.
"You've got to show you're investing in the industrial base that would make you a useful ally, otherwise you're adding complexity without benefits," the source in Australia said.
