The Treasury

Global Navigation

Personal tools


  • In 2009, the Government spent $11.5 billion on education.
  • That is about 18% of core Crown spending, and 6.4% of GDP. This is divided into:
    • early childhood education - about 10% of the total in 2009
    • primary and secondary schooling - about 45%
    • tertiary education about 40%, and
    • departmental and other expenses - about 5%.[31]
  • Since 1994, education spending has grown at an average rate of 7.2% per year.

Education is important to New Zealand's long-term economic and fiscal outlook, both as a major area of government expenditure, and for the significant role skills and research can play as a driver of long-term productivity growth.

If education expenditure is effective, it can help boost New Zealand's future workforce skills, and labour force participation rates. Education can help drive innovation and build international connections that create new economic opportunities.[32] The challenge in education policy is to balance the potential long-term pay-offs from well-designed government expenditure against the immediate costs and ongoing need to improve the cost-effectiveness of spending.

Government spending on education has grown faster than the New Zealand economy and total government revenue over the long term. This is shown in Figure 7.7, as education spending has increased from just above 2% of GDP in 1950, to just above 6% in 2009. Education spending has also grown quickly over the past decade, particularly in the early childhood area. After adjusting for inflation, spending on education almost doubled from 1994 to 2009, rising from $5.9 billion to $11.5 billion (in 2009 dollars).

Figure 7.7 - Education spending and ratio of students to workers
Figure 7.7 - Education spending and ratio of students to workers.
Sources: The Treasury, Ministry of Education

As shown in Figure 7.7, demographic trends have not always played a large part in the long-term trends in education spending. Despite a recent increase in birth rates that will push school rolls back up somewhat in the next 15 years, the number of people under the age of 25 will remain relatively stable over the next 40 years and the proportion of young people in the population will decline steadily. However, participation rates in education have been increasing over time, and if this were to continue it would contribute to cost pressures. Managing these costs is important to the long-term fiscal outlook as slower spending growth in areas such as education and benefits, which do not face demographic pressure, could help to offset pressures in other areas.

The policy choices that governments make are a major driver of education spending because these policies can affect participation rates, average per-student costs and the share of total costs that is paid by the government. For example, policy decisions in recent years have:

  • increased inflation-adjusted per-student or per-child costs in all sectors of the education system – driven mainly by real wage increases for teachers and other staff, lower staff/student ratios and group/class sizes and increased funding for other costs such as property and overheads, and
  • shifted costs from individual learners and their families to the government – eg, the 20 hours free early childhood education policy and interest-free student loans.

After accounting for participation growth and inflation, education spending per student has increased by around 27% since 2001.

Countries tend to spend more on education as their economies grow. At around 6% of GDP, government spending on education is higher than most OECD countries because we have a relatively young population and high participation rates in education at all ages. Comparing countries' per-student spending relative to per-capita GDP, New Zealand sits around the OECD average.[33]

Early childhood education

Participation in high-quality early childhood education (ECE) can have measurable positive effects on children's long-term development, educational achievement and future economic success. This is true especially for children from low-income families and children whose parents have low levels of education.[34]

Between 2001 and 2009 government spending on ECE increased by more than 220%. While participation has increased, the growth in government spending has largely been to fund quality improvements (eg, higher numbers of registered teachers), and to shift costs of participation from parents to government (eg, the "20 Hours Free ECE" policy introduced in 2007). The average per-child cost of ECE to the Government has risen sharply. From 2001 to 2009, inflation-adjusted spending per full-time enrolment increased by about 75%.[35]


Inflation-adjusted spending per student in schools has increased by more than 20% since 2001. This has been driven by increases in wages for teachers and other school sector workers, and increases in staff numbers to enable additional non-contact time for teachers. A minor driver of average per-student costs has been the growth in student numbers in the more expensive senior secondary school years.

For extra expenditure to improve outcomes, it must be aligned with system improvements. Many expensive attempts around the world to improve schooling have failed to deliver increases in students' skills. International comparisons show little, if any, relationship between per-student expenditure and the overall quality of schooling and student achievement. This does not mean that money does not matter, but that the amount of funding seems to matter less than the quality of the system into which it is channelled.[36]

It is difficult to measure productivity in education, as outcomes for students can be hard to measure and difficult to attribute to particular causes. Education outcomes depend on many factors both inside and outside institutions over long time periods. In terms of measurable changes in learning outcomes in recent times (ie, student achievement) we can show a marked improvement in school leavers' qualifications following the introduction of the new National Certificate of Educational Achievement (NCEA) system.[37] The NCEA involves a new set of rules, measures and incentives, which has offered students more flexibility and opportunity to complete qualifications. Arguably, introducing the new qualifications system has had a greater impact on the measure of student achievement than any increase in education spending.

International achievement studies at school age show a fairly stable pattern over time. New Zealand students perform around the international average levels in earlier years of schooling. In secondary school, the average score of New Zealand 15-year-olds has been near the top of the OECD since 2000 in the three measured areas of reading, mathematics and science. The proportion of students achieving at the highest levels is amongst the best in the OECD. But we also have one of the highest levels of variability in student achievement - with students from low-income families being over-represented in our "long tail of underachievement".[38]

Tertiary education

The number of students in tertiary education has grown by more than 20% from 2001 to 2009. Almost all this growth has been in wananga, polytechnics and industry training programmes offering sub-degree-level qualifications. Counting funding to institutions, as well as funding to students (student loans and allowances), inflation-adjusted expenditure per full-time student has risen by around 30% since 2001.[39],[40]


Page top