In May 2001, the government announced it was scrapping its combat air force. New Zealand states it maintains a "credible minimum force," although critics maintain that the country's defense forces have fallen below this standard.

With a claimed area of direct strategic concern that extends from Australia to Southeast Asia to the South Pacific, New Zealand necessarily places substantial reliance on its defense relationship with other countries, in particular Australia. However, acknowledging the need to improve its defense capabilities, the government in 2005 allocated an additional NZ$4.6 billion (U.S. $3.19 billion) over 10 years to modernize the countryís defense equipment and infrastructure and increase its military personnel. The funding represented a 51% increase in defense spending since the Labour government took office in 1999.

New Zealand is an active participant in multilateral peacekeeping. It has taken a leading role in trying to bring peace, reconciliation, and reconstruction to the Solomon Islands and the neighboring island of Bougainville. New Zealand maintains a contingent in the Sinai Multinational Force and Observers and has contributed to UN peacekeeping operations in Angola, Cambodia, Somalia, and the former Yugoslavia. It also participated in the Multilateral Interception Force in the Persian Gulf. New Zealand's most recent PKO experience has been in East Timor, where it initially dispatched almost 10% of its entire defense force. New Zealand participated in Operation Enduring Freedom and has fielded a Provincial Reconstruction Team in Afghanistan, as well as having deployed a frigate to the Gulf of Oman. In support of the effort to reconstruct Iraq, New Zealand deployed an engineering team to the country.

New Zealand participates in sharing training facilities, personnel exchanges, and joint exercises with the Philippines, Thailand, Indonesia, Papua New Guinea, Brunei, Tonga, and South Pacific states. It also exercises with its Five-Power Defense Arrangement partners--Australia, the United Kingdom, Malaysia, and Singapore. Due to New Zealand's antinuclear policy, defense cooperation with the U.S., including training exercises, has been significantly restricted since 1986.