Wellington needed to ensure "the capability to defend and advance New Zealand's interests," said Willis, adding that the NZ$3.5 billion ($2.05 billion) in new funding over the next four years will include extending the life of Anzac-class frigates, acquiring new drones and improving security and intelligence services.

"New Zealand faces the most adverse and contested geostrategic environment in the past 80 years," she said.

Defence spending will make up 1.23 percent of the country's GDP in the coming year, according to the budget document.

Foreign Affairs Minister Winston Peters also announced a NZ$109.8 million boost to aid funding for the Pacific and NZ$145.3 million for offshore diplomatic work.

Peters said the funding would "safeguard New Zealand's frontline diplomatic and trade network".

Wellington "must pursue a highly active and effective foreign policy to defend and advance New Zealanders' interests", he said.

Other big-ticket budget items include nearly NZ$1 billion to respond to the global fuel crisis created by war in the Middle East, which Willis said had halted New Zealand's expected economic recovery.

"The situation in the Middle East remains uncertain, so it is prudent to be ready should fuel prices rise further and add more pressure to households and businesses," Willis said.

She added that inflation -- currently at 3.1 percent -- is expected to spike as a result of the war but Wellington was attempting to "support those most affected by higher fuel prices".

A NZ$150 million strategic fuel reserve has been put in place, with an additional NZ$450 million earmarked for temporary support if supplies worsen.

Eligible families will also receive a NZ$50 per week tax credit for up to a year, according to the budget document.

Treasury warned that conditions had already worsened since it finalised its budget forecast on April 24.

"Should more severe shocks materialise, from the Middle East conflict or other sources, there could be permanent impacts on productive capacity resulting in more enduring impacts on the economic and fiscal position," the budget document said.