Unlocking the productivity dividend of digital government in New Zealand
15.10.2025 - 07:11
Our latest research in collaboration with Microsoft examines how cloud infrastructure can unlock substantial productivity gains for the New Zealand Government. This study reveals that the Government could unlock $360 million a year in fiscal savings and productivity gains to 2035 through public cloud's efficient use of IT labour and infrastructure. We find that government agencies can reduce their IT budgets by 12 to 25 per cent through 2035, while delivering enhanced cybersecurity, operational resilience, and service delivery across the public sector.
New Zealand has the opportunity to advance its global leadership in digital government through accelerated cloud adoption
New Zealand has been a global leader in digital government transformation, ranking among the top 10 nations in the UN E-Government Development Index - but other countries are now surging ahead by adopting cloud.
Accelerating public cloud adoption is a strategic opportunity to enhance service quality, foster innovation, and reassert New Zealand’s leadership in digital government.
This report focuses on the benefits of accelerating public cloud adoption across the New Zealand Government.
Government could unlock $3.6 billion in fiscal savings by 2035
The New Zealand Government could save $1.1 billion by 2030, and $3.6 billion by 2035, if it accelerated its current timeline for public cloud adoption by just five years.This represents an average annual saving of $360M over the decade, and a 14 per cent reduction in total IT costs compared to a ‘business-as-usual’ (BAU) scenario.
Cloud migration shifts government IT spending from large capital investments to paying only for resources used. The pay-as-you-go model reduces upfront infrastructure costs and over-provisioning, unlocking $2.7 billion of the $3.6 billion in fiscal savings through greater efficiency and flexibility.
Shifting operational costs away from Government reduces the need for external IT contractors managing legacy systems, delivering significant savings, and redirecting internal IT staff efforts to value-adding tasks around innovation and digital service delivery.
Cloud infrastructure unlocks additional benefits across security, productivity, and sustainability
Over the next decade, accelerated cloud adoption could result in an additional $2.3 billion in productivity benefits from AI usage. This represents a 48 per cent increase compared to the productivity gains that could be expected in the BAU scenario, where AI uptake is slower
A Government agency’s trial of Microsoft Copilot in 2024 demonstrated the potential. The evaluation found significant impacts of staff productivity, work quality and job satisfaction.
Additional benefits supported by cloud capabilities include:
- Enhanced cybersecurity, saving up to $121 million in breach costs.
- Improved operational resilience, with a 19 per cent reduction in costs associated with system outages.
- Environmental sustainability, with an 11 per cent reduction in carbon footprint.
Government can consider three key areas to drive digital transformation and realise these benefits
Despite public cloud's clear benefits, structural, cultural, and capability barriers are preventing faster adoption.
Success requires coordinated action across three key areas:
- Modernise procurement frameworks, with more flexible OpEx financing that supports consumption-based cloud models and expands procurement evaluation to assess innovation, security, and measurable business outcomes.
- Strengthen governance mechanisms across government, stronger whole-of-government leadership and clearer accountability for outcomes to drive momentum and make real progress. Achieving this requires alignment across security, policy, and funding levers.
- Establish industry partnerships, with co-investment models that share transformation risks, build sovereign capabilities, and invest in skills across the New Zealand Public Service.
Leading examples from the US Technology Modernization Fund, the UK's Government Digital Service, and the NSW Government’s partnership with Microsoft demonstrate how coordinated approaches can drive transformation, support national capability development, and improve the delivery of government services.
Read the full report here.
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