Defence Minister Jonathan Coleman says the Auditor-General has got it wrong in a critical report on a cost-cutting programme to turn hundreds of military positions into civilian jobs.
A report by Auditor-General Lynn Provost has found the Defence Force's Civilianisation Project damaged morale and reduced defence capability because of staff attrition.
The report released on Wednesday says the Defence Force is now short of soldiers, affecting its ability to fulfil its obligations.
It says that is partly because of the way the transition was carried out, upsetting many involved, leading to a drop in morale and more soldiers leaving the force than expected. The changes have not achieved the expected level of savings, it says.
Dr Coleman told Radio New Zealand's Morning Report programme he disagreed with some of the findings.
He said only 305 positions were civilianised in the end and the Defence Force is meeting its output targets and doing the tasks it is contracted for.
"In terms of frontline capabilities, those positions which have been civilianised, they're in the back office.
"We're not talking about the SAS or people on our ships now being replaced with civilians."
The minister said it would have been more helpful to have recommendations about how Defence can reach future savings targets.
He has described the Auditor-General's findings as old news and said the problems have been fixed.
Navy work harmed, says Labour
The Labour Party says the Defence Minister has his head in the clouds if he thinks cuts at the Defence Force have not been damaging.
The report said the Navy's patrol vessels sailed 150 fewer days than it was funded for in 2011/12 because of a shortage of staff.
Labour's acting defence spokesperson Phil Goff says the Navy is not doing the work it should be and the Minister is in denial.
Impact still to be seen - analyst
The director of Victoria University's Centre for Strategic Studies says while civilian staff are cheaper, the Defence Force needs that broader base of military personnel to draw on during large-scale deployments.
Professor Robert Ayson says the full effect of the changes won't be known until there's a major crisis that requires deployment.
He says it was naive to assume it was possible to save millions without affecting people, operations and capabilities, which are the three main costs.
Returned and Services League president Lieutenant General Don McIver says Defence was under huge pressure from the Government to cut costs.
The head of the Defence Force, Lieutenant-General Rhys Jones, admits the organisation made mistakes, but says it continues to meet all operational targets.