Defence Force personnel living in military housing are set to pay market rates by the end of the year following an announcement today.
The change will be particularly painful for those serving at Auckland bases, but the Government said a $45million pay rise for personnel will mean no-one is worse off.
Chief of the Defence Force, Lieutenant General Rhys Jones, told regular force, reserve force and civilian staff of the multi-million dollar injection into their remuneration package this morning.
It is the Defence Force's first pay rise in four years.
"The 2012 Remuneration Package is a significant investment in the Defence Force's people," Jones said.
But while soliders' wages will rise, so will their rent.
The Defence Force will remove the rent advantage people living in service housing have had compared with those living off base.
The Defence Force currently owns around 2500 houses near its major bases, and the average cost to live in one - regardless of whether it's near Burnham, Ohakea or Devonport - has been around $120 per week.
But according to Government statistics the average rent for a two-bedroom house near the Devonport base is around $480 per week.
"Behind these changes has been the desire to be fair to all our personnel," Jones said.
He said the pay rise was not across the board, saying that the remuneration system used within the Defence Force is more complex than that and instead links every position to published market rates.
"To ensure fairness, these changes bring all Defence Force people's pay up to the midpoint of the appropriate published 2012 market data.
"The vast majority of Defence Force employees will get an increase to their basic salary. The total remuneration of those already above the mid-point is being protected."
Regular force and reserve force personnel will also see an increase in what is known as the 'Military Factor', which is the premium paid to uniformed personnel in recognition of the hardships associated with military life, for example, often being separated from family, and being on call 24/7.
He said that this will compensate for the removal of some current leave and allowance entitlements.
The NZDF has saved $142 million in the past financial year, and Jones said the pay rise would see some of the savings it had achieved reinvested into staff.
"This was always one of the promised rewards of finding efficiencies - reinvesting in our frontline, which is our people," he said.
The Defence Force has allocated up to another $40 million in a one-off buy-back or buy-out of specific entitlements and conditions of service that are being phased out.
The NZDF has been cost-cutting to meet a Government target of shaving $400 million off the defence budget by 2014/15.
In order to cut costs over 300 uniformed roles were civilianised. Rear Admiral Jack Steer, vice chief of NZDF, said at the time that it was the hardest thing the force had ever done.
He said the forces suffered from "change fatigue" and that the process of civilisation had been "too damaging", with a record high 19% attrition rate.