New Zealand will boost funding for both defence and foreign affairs in its upcoming budget, in a move likely to please its international partners.

Finance Minister Nicola Willis will come good on campaign pledges to shrink the public service and right-size the government when she unveils the budget on May 30. With the government books in structural deficit, the country’s new government led by Chris Luxon has ordered agency chiefs to find savings of around seven per cent, with full cuts to be revealed on budget day.

The Ministry of Foreign Affairs and Trade, the Ministry of Defence and the Defence Forces (NZDF) have not been exempt from the cost-saving exercise, but Ms Willis told AAP the grouping would see an budget boost on top of any efficiency dividend.

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"We have a view that New Zealand’s presence on the world stage is incredibly important and also that we are living in a less benign geostrategic environment" she said. "There are real challenges to global peace and security and it’s going to be appropriate that we step up our defence capability".

Without giving firm details across agencies, Ms Willis said both capital and operational spending would be increased. Further boosts in future budgets also appear to be assured, particularly for defence. Defence Minister Judith Collins is currently preparing New Zealand’s latest Defence Capability Plan, which will spell out defence force needs through to 2040.

Given the NZDF’s high attrition - which has seen almost half its navy fleet grounded - as well as ageing equipment and infrastructure issues, the need to invest is well understood.

"Until we’ve got that (Capability Plan) we don’t want to be making the big investments, but even so there are some obvious investments that we’re making this budget" Ms Willis said.

The previous year’s total foreign affairs budget was $NZ2.2 billion ($A2 billion), with defence spending just under $NZ5.3 billion ($A4.8 billion). Ms Willis, of the centre-right National party that is the biggest coalition member, will have pleased junior parties ACT and NZ First with the move. Both ACT and NZ First campaigned on lifting defence spending to two per cent of GDP. It is currently a little more than one per cent.

Ms Willis has committed to a lift, though she isn’t sold on a particular benchmark. "We shouldn’t just blindly go for a percentage. What’s most important is that we invest in the right capability" she said, arguing for interoperability with partners. "They want to see that we can work well with their forces, that we’re complimentary to what they’re doing and what they have" she said. "The most important contribution we can make is to think carefully through what those requirements are".

That’s likely to be music to the ears of Australia, given Canberra’s eagerness to partner with Wellington on challenges in the region. The interoperability goal follows a pledge earlier in 2024 by Ms Collins, who told AAP it’s really important that New Zealand not be a freeloader on regional defence. In a major foreign policy address on Wednesday, Foreign Minister Winston Peters said New Zealand’s long history of parsimony needed to end if we wish to continue garnering respect, citing a more dangerous world.

Ms Willis agrees, recalling her dining company at a gathering of finance ministers on a recent trip to Washington DC. "On one side, I had the Ukrainian finance minister who is in an existential battle for the future of his country she said. On the other side, the Polish finance minister who was looking at spending four per cent of GDP on defence because he views the security of his nation as being potentially imperilled.

The United States, Australia, the United Kingdom, Canada, our intelligence partners, are all concerned about where conflict will go in our world over the next few years and its implications for trade, implications for security and peace.

It’s very sobering and I’m very conscious of it".