Photo: RNZ
New Zealand’s Ministry of Foreign Affairs and Trade (MFAT) has rejected an expert’s suggestion that it “misplaced” hundreds of millions in aid funding.
Budget 2026 set out $1.2 billion in foreign aid spending this fiscal year, around $116m more than last year. It also front-loaded $110 million for the next three years, exclusively for the Indo-Pacific.
But the budget estimates showed that MFAT spent $162 million less on foreign aid in 2024-25 financial year than it had set out in previous years.
Development expert Terence Wood, a fellow at the Australian National University, who scrutinises NZ aid, said $162m was “an awful lot of money to have thought you had spent only to discover it’s still in your wallet”.
“To the government’s credit, it hasn’t repossessed the money, or disappeared it. Rather, it has rolled it forward, which means that – assuming the cash doesn’t get lost again – New Zealand’s aid spend will increase considerably this year,” he wrote in a Substack post last Thursday.
However, Wood told RNZ Pacific that the “misplaced millions“ raised serious questions about MFAT’s budget management.
“That’s not necessarily evidence of anything inappropriate at the government end or even anything catastrophic, but I’m a little bewildered that they ended up with such a difference,” he said. “That’s kind of mysterious.”
A MFAT spokesperson told RNZ Pacific on Tuesday that the $162m was an underspend that has been carried over to this year.
They said it was rolled through for use in years 2-3 of the current 2024-2027 triennium to align with revised programme plans, as is allowed for with this type of appropriation.
Wood noted that the Budget 2026 aid bump bucked a trend where development spending decreased in real terms of overtime, reflecting a worldwide retreat.
But if it were the case that the missing $162 million was carried over, Wood said it would be much less impressive.
“Whether it’s [Foreign Minister] Winston Peters fighting for his turf, or whether it’s just a recognition of the fact that Pacific countries are struggling right now, or whether there’s the perceived need to stave off China’s impact in the Pacific, it’s a surprise.”
Peters vs illis
MFAT emerged as one of the big winners of Budget 2026, with a $275m injection over four years for foreign aid and consular funding, after Peters was able to exempt the Ministry from required cuts.
In 2025, Peters fought a losing battle to retain aid funding in the budget, which saw a drop in real terms.
Advice from Treasury to Fiannce Minister Nicola Willis from February last year, released in November, stated that MFAT was beset with too many “specific fiscal risks” to justify new funding.
“The Minister has significant ambition for the Foreign Affairs portfolio, but allowances are constrained and there is likely further scope for savings and reprioritisation.”
Willis was advised to inform Peters that his level of ambition was essentially impossible, and to prepare his Ministry for a downsize. Peters had asked for a “cost pressure initiative” that did not involve savings, but Willis was advised to put these aside.
“We do not recommend supporting this initiative as there is likely further scope for savings and reprioritisation, which should be used to offset urgent cost pressures rather than seeking funding at this Budget.”
The advice noted that Peters had submitted funding proposals utilising both defence and foreign affairs funding envelopes, and that defence would be clearly prioritised over foreign affairs.
It said that reprioritisations could include closing non-priority diplomatic posts and “reprioritising” aid spending.
However, by March of 2025, Peters was not budging.
“Despite what [Willis] relayed to the Minister about the Government’s constrained fiscal circumstances and your views about the costs of some initiatives, [Peters] proposes no change to the total quantum of his requests,” a Treasury memo noted.
Ultimately, Budget 2025 saw total annual appropriations for Vote Foreign Affairs decrease by around $98 million.
Unmet climate financing targets
Last year, a time-sensitive commitment to international climate financing was left – for the most part – unfunded. And with nothing additional this year, Treasury said it remains a fiscal risk, with an attached cost of up to $500m in the near future, unless the government abandons its climate commitments.
Wood said that NZ’s climate financing has become redundant.
“The money that we give to developing countries to either mitigate their own emissions or adapt to the effects of climate change, all comes out of our aid budget anyhow.”
“There was a time under Labour where the aid budget was increasing to incorporate rising climate finance spending. However, that stopped, and so any changes in nominal climate finance to developing countries, they’re kind of a fiction.”
Budget 2026 also left Paris agreement commitments unfunded.
