Source: Radio New Zealand
Wellington’s spending dropped 2.8 percent over the year, compared to a fall of 1 percent for the country. File photo. RNZ / REECE BAKER
Wellington’s struggling economy is expected to be hit with another blow, with the government planning to cut 8700 jobs from the public sector by mid-2029.
There are currently just over 63,000 full-time public servants, which is a slight decrease under this coalition government from the high of about 65,000 in the 2024/25 year.
Wellington typically has less unemployment than other parts of the country, but annual average unemployment rate in the central Wellington area was 5.1 percent in the year to December 2025, up from 4.7 percent in the previous 12 months, Infometrics data showed.
It said Wellington’s spending dropped 2.8 percent over the year, compared to a fall of 1 percent for the country.
Infometrics chief executive Brad Olsen said if all the cuts came from Wellington, it would be a challenge for the city.
“It does reinforce why Wellington is going to have to work quite hard on trying to adjust to not having the public sector as quite as strong a driver of economic activity. There is still a lot of other things happening in Wellington, but clearly, having that sort of dominant focus on the public sector has been supportive when especially when the public sector expanded.
“As you try and see that level dragged back, or that rate dragged back to a more of a historical average, that is going (0:58) to cause some sort of economic pain coming through for the city.”
He said the process would be relatively slow.
“It will be taking a bit of time until we figure out exactly what those numbers look like.”
He said public sector job numbers might have got unsustainably high.
“This is one of the great challenges around public spending in general, is that you’ve got an enormous amount of money that’s going into various services, both staff and, you know, other services that government provides.
“Yet sometimes the outcomes don’t seem to follow the money quite as much. And I guess that’s one of the challenges, is that there’s been a big question around value for money from government and government saying, well, we’ve got all these additional workers and we’ve got all this additional money that’s being put into the system. Why are we not getting better outcomes?
“I think the focus now is much more on what is achieved with the money and the resources that are coming out. .. I’m sure there’s a lot of incredibly important and useful work comes through, but government does have a limited budget.”
He said the strong public sector in recent times might have put Wellington in a position where things were “more rosy” than they might otherwise have been.
“Now out the other side, things are having to reverse out… all this talk of Wellington’s demise seems to be quite overblown. There’s still a lot of people who work in Wellington. There’s still the highest incomes in the country and there’s still a lot going for Wellington. But Wellington will change, just like many other economies around New Zealand have adjusted over time. Think of some of the biggest places that might have had large timber mills in them. They might have been, you know, gold towns at a time. There’s been times where, you know, this really strong predominant employment driver of any particular part of the country sometimes doesn’t continue to exist in quite the same way.”
Wellington’s housing market has also been weaker than most parts of the country in recent times and values are still down 27 percent from the peak, the largest drop in the country.
Cotality chief property economist Kelvin Davidson said it would have a negative effect on Wellington, but it could be a more dispersed impact than people expected.
“It’s going to be significant for the Wellington economy, which is already under a bit of pressure.
“I suppose there are safety valves…people will find work elsewhere, some will… that’s just always part of the labour market.”
He said there was also the chance that there could be a change of government which altered the plan before it took effect.
“But it’s obviously a significant negative impact on Wellington’s employment that will be negative for Wellington’s housing market, which is already looking pretty weak. And there’s the direct impact, obviously, of job losses and reductions in income.
“But also, I think probably there’s a wider confidence thing. I mean, we’ve seen that probably in the most recent couple of years…we’ve seen that spillover effect on confidence that is not just sort of a direct effect of people losing work. It’s that sort of spillover and impact on related businesses and cafes in central Wellington or all of that sort of thing. So there’s that sort of indirect impact, which arguably could be a little bit bigger from a wider economic perspective.
“It’s a probably obviously the last thing those households need that are going to be affected and the last thing the Wellington economy needs… But at the same time, there are a lot of first-time buyers in the Wellington housing market. They are taking advantage of lower prices and a lot of stock sitting on the market. So there’s always silver linings for some people.”
Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make and spend money
– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand