Treasury had an issue with the Defence Force wanting to shovel a lot of its Budget windfall into meeting cost pressures instead of new kit, newly released documents show.

Two-thirds of the new operating funding that NZDF sought was to deal with inflation, and not help with the new Defence Capability Plan (DCP), Treasury said.

Instead, the mountain of spending under that $12b plan would be pushed out on to future Budgets.

"We have concerns with the cost pressure submission," it said in a briefing to the Finance and Defence Ministers ahead of them meeting in early March.

It would raise operating expenditure by almost 10 percent, "far above the forecast rate of inflation".

"The emphasis placed on cost pressures in the Defence submission reduces available funding for new investments, and results in deferral and accumulation of DCP investment requests at future Budgets."

It suggested Finance Minister Nicola Willis should ask Defence Minister Judith Collins if there were options to change the composition of the package to prioritise additional new investments over cost pressure.

The number-crunchers then suggested scaling back a dozen initiatives - including some DCP ones - and putting another seven off until later.

However, a later document showed Defence largely got the larger sums it wanted to deal with the cost pressures that for several years have kept ships tied up, aircraft grounded and poor housing lingering unfixed.

The documents were released last Thursday in background to the May Budget that delivered $1.49b in operational spending and $2.67b in capital spending to Defence, while many other agencies scrabbled for titbits or had their funding cut.

The DCP is New Zealand's big play to raise low defence spending, yet Treasury kept open the option of "scaling [back] or deferring some DCP initiatives" if ministers were looking for ways to reduce the outlay, the papers showed.

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In them, Treasury raised questions about Defence's financial management, and how it measures its effectiveness.

This comes at a time when the depleted forces were being expected to shop wisely for new weapons.

Collins had said how they do not really want any more money just now - "I'd say, maybe better not just right now... we have to be able to spend it properly ... any fool can go out and buy a whole lot of things."

Defence Minister Judith Collins. (File photo) Photo: Supplied

The fresh papers showed two-thirds of all the cost pressures in the whole Budget sat within a handful of agencies: defence, health and education among them.

Defence received $800m since 2020-21 to meet rising costs, with the largest lump of about $250m this year.

Yet it hadn't always handled the extra money well.

"In some cases, cost pressure funding is being sought at Budget 2025 to address issues created by NZDF's own financial management practices," Treasury said in the bilateral briefing.

For instance, NZDF had got funding to restore personnel numbers bled low after Covid, only to then not fill the vacancies and instead "offset other cost pressures".

For Budget 2025, it seemed to have lumped together cost pressures going back several years, when it should only be about the current year, it added.

Willis pointed out in a letter to Collins the tricky balance: A "deteriorating strategic environment" meant the country needed a strong NZDF but its funding should not run counter to the government's fiscal strategy of balancing the books, she said.

Finance Minister Nicola Willis. (File photo) Photo: RNZ / Samuel Rillstone

The budget watchdogs expressed dissatisfaction at the woolliness of some NZDF reasoning.

"In many cases the underlying drivers and the scale of funding being sought for some cost pressure initiatives has not been sufficiently justified, with the same generic explanations used across different initiatives," the briefing said.

"The initiatives did not outline what specific outputs would change, by how much, by when, and how performance would be measured and demonstrated."

The NZDF and minister did not appear to agree on whether a low-to-medium level of funding would actually erode operations (Collins) or keep things much the same (NZDF).

"This makes it challenging to confidently determine implications and trade-offs at different levels of funding, assess the value spending will deliver, and monitor Defence's effectiveness in lifting outputs."