New Zealand Cut Spending—and Came Out Ahead

In the early 1980s, New Zealand’s economy was in serious trouble. Deficits were ballooning, unemployment was rising, and growth was stagnating. Then came a bold but effective move: The government slashed spending. Dramatically.

This wasn’t just trimming fat; it was a full reimagination of the public sector. Among many other reforms including a significant reduction of tariffs, government spending significantly decreased. Spending cuts weren’t treated as punishment, but as possibility—an opportunity to refocus government, empower markets, and build something better.

Look no further than the agricultural sector. For decades, New Zealand farmers were deeply dependent on a dense web of subsidies: price supports, input subsidies, tax breaks, debt relief, the works. At their peak, these subsidies made up nearly 40 percent of many farmers’ incomes. These policies were meant to protect rural communities, but production skewed so far from demand that the government had to cover the cost of slaughtering unsellable sheep. In 1983, the last year of the subsidies, 6,000 tons of excess sheep meat was converted into fertilizer.  

When the government pulled the plug on agricultural subsidies in 1984 as part of its broader spending cuts, the industry did not collapse—it adapted.

Yes, some farms closed, particularly those propped up artificially. But only about 1 percent of farmers left the sector (and received exit packages). Most adapted, and many thrived. Farmers began innovating: diversifying crops, investing in better equipment, improving efficiency, and competing based on quality instead of volume. Larger operations adopted new technologies and expanded exports. Smaller farms carved out niche markets, focusing on organic production or specialty goods. Crucially, individual farmers—not bureaucrats—made the strategic decisions. The shift forced both resilience and creativity.

Today, New Zealand’s agricultural productivity has quadrupled since the pre-reform era. The nation is one of the largest global exporters of dairy commodities, as well as beef, sheep meat, wool, fruits, vegetables, and wine. The sector is among the most competitive in the world—not thanks to superfluous subsidies, but because of smart, market-driven production.

The environmental impact was profound, too. Without government incentives to overproduce, farmers stopped chasing artificially high yields. Using less land had a positive impact on soil and biodiversity. Overgrazing fell. With less fertilizer and pesticide use, water quality improved. In short, when the government stopped encouraging unsustainable practices, sustainability followed. The result was lower emissions, healthier ecosystems, and smarter land use.

Agriculture wasn’t the only beneficiary of reform. Across the broader economy, the impact of disciplined budgeting was transformative. The government didn’t disappear—it simply became more focused. Lawmakers cut red tape and funneled resources into public services that delivered better results.

Fiscal buffers were rebuilt, giving the country more resilience in the face of future shocks. And with a more stable macroeconomic environment, the private sector was better positioned to grow, hire, and innovate.

None of this was painless. Spending cuts almost always come with tradeoffs. Transitions can’t be seamless. But New Zealand’s experience proves that cutting spending, when done deliberately and with long-term goals in mind, can yield enormous (and often unexpected) benefits. When governments prioritize efficiency, markets work better, public trust improves, and economies grow.

As the national debt in the United States climbs to scary levels, there’s a tendency to treat spending reform as an unfortunate burden. But New Zealand’s success shows that targeted cuts can unlock real improvements.

Like New Zealand pre-reform, the United States heavily subsidizes its farming sector. Leftover from an outdated system, these subsidies cost taxpayers tens of billions of dollars each year and often go to large agribusinesses instead of family farms. Reforming this system would mean empowering farmers, not abandoning them. As New Zealand showed, reducing spending in specific sectors doesn’t have to mean gutting them. There’s a massive opportunity for improvement—not just in terms of efficiency and cost savings, but also for more unexpected results like environmental sustainability.

Careful cuts don’t just close budget gaps. They open doors to smarter, more sustainable growth.