The Corrections Department will be the largest government department within a few years, Finance Minister Bill English said.
The number of staff directly employed by corrections, which runs the country's prisons, would be higher than other departments, The New Zealand Herald reported.
"That's our fastest growing portfolio - corrections will be in two or three years the largest government department, bigger than the Ministry of Social Development or the Inland Revenue Department," Mr English said.
The increase was likely due to increasing prisoner numbers - now about 8400 and forecast to rise to 12,500 by 2018.
Mr English said police and corrections would need $400 million over the next three years.
The Government was considering a public-private partnership for a new prison in Wiri, South Auckland.
NZPA