New Zealand funding pause forces Cook Islands into early budget overhaul

The pause in $30 million New Zealand funding has placed "immediate pressure" on Cook Islands Government finances, according to the Public Accounts Committee (PAC) in its Report on the review of the Supplementary Budget being debated in parliament.

The Cook Islands government is seeking an increase of $36,252,949 through this Supplementary Budget, bringing the total Budget for the 2025/26 financial year, which was approved five months ago, to $372,388,917. The Supplementary Budget is normally tabled in the new year.

According to the Committee, the Supplementary Budget was required due to the confirmed pause of New Zealand funding totalling $20 million over two years, along with an additional $10.5 million suspension for Public Sector Strengthening. It was introduced earlier than usual, in December, to address the resulting "fiscal shortfall and rebalance expenditure".

"The suspension of more than $30 million in expected New Zealand support has significantly reduced the Government's financial flexibility. This funding had been earmarked for essential services, public sector strengthening, and long-term reforms," the PAC said.

"Without it, the Government must rely more heavily on internal revenue and reserves, making careful financial management critical in the short term.

"These developments, in the Committee's view have placed pressure on the nation's finances and required early intervention to safeguard the Government's fiscal position."

New Zealand paused its direct budget support to the Cook Islands over the current and the next financial year, accusing the Cook Islands government of breaching New Zealand's trust "through a series of actions that are well known".

The diplomatic fallout between the two nations, which share a special constitutional relationship, stems from agreements the Cook Islands signed with China in February this year. New Zealand says those agreements, signed without proper consultation, violate the 2001 Joint Centenary Declaration with the Cook Islands.

In November, Cook Islands Prime Minister Mark Brown, who is also the Minister of Finance, said that the country's fiscal settings remained sound.

In parliament on Monday local time, Brown acknowledged the challenge, saying "the pause in New Zealand's budgetary support reduced our available funds".

The PAC says Cook Islands government must lead direct engagement with the New Zealand government to resolve the current funding pause, ensuring that New Zealand's financial assistance to the Cook Islands is restored and does not extend into the next financial year.

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"The Committee observed that managing the funding pause will require improved dialogue with the New Zealand government. Strengthening this relationship is essential for restoring confidence and securing future support."

The PAC also noted government's efforts to strengthen diplomatic partnerships by allocating funds of $200,000 to support and deepen the Cook Islands-New Zealand relationship through dedicated diplomatic and senior management engagement.

Brown said the Cook Islands have a long-standing and special relationship with New Zealand, "and it is vital that we nurture it".

"Therefore, we are allocating $200,000 to strengthen and support this partnership, funding dedicated staff to maintain active and constructive dialogue at both the senior management and the leadership levels."

Despite the funding pause, the Cook Islands economy has shown strong performance, particularly through tourism, the PAC said. With record visitor arrivals in 2025 and higher-than forecast VAT collections, domestic revenue has increased.

"This positive trend has helped offset part of the shortfall, demonstrating the economy's resilience and the importance of the tourism sector for national stability."

However, the Committee noted that the fiscal space remains extremely limited and requires caution.

"Even with improved revenue, the Government has only $2 million in fiscal space available for the 2025/26 financial year - an amount too small to support any major new initiatives.

"While fiscal space is projected to increase slightly next year, it is expected to decline thereafter, meaning that the Government must avoid over-committing to new spending and must closely monitor reserve levels to remain within safe fiscal limits."

Brown also highlighted that the economy continues to grow beyond expectations.

"We are sustaining the same level of services as planned in our May Budget, thanks to increased revenue and prudent prioritisation of funds."

For the remainder of this financial year, Brown said the government is addressing emerging and important funding needs, including areas affected by the current pause in New Zealand's budget support, so that services for the people are maintained.

"With New Zealand's pause on funding under the Public Sector Strengthening Fund, government is acting to maintain momentum on key reforms and to protect the capability that underpins essential services for our people," he added.

The total appropriation under the revised Budget is $372,388,917, representing an increase of $36,252,949 (11 percent) from the Appropriation Bill 2025-2026 passed in June 2025.