Options for managing spending growth
Over the past 15 years, education spending has grown by an average of 6.3% per year. In the sustainable debt scenario, to avoid increases in tax or debt, or reduced growth in other spending areas, we assume education spending grows at 2.8% per year.
Because government policy choices are a major driver of education costs, there is a wide range of options available to adapt to a lower rate of spending growth. In doing this, there are difficult trade-offs between different education objectives (eg, economic, social and cultural).
If government education spending is to be constrained without compromising student achievement and the future skills and productivity of New Zealand's workforce, we will need to:
- improve the productivity of the education system – using limited funding more efficiently to achieve the same or better results, and/or
- reduce the quantity of publicly-funded education services – by shifting more of the cost of education services from the government to individual students and families, and targeting government support to those who will benefit most.
A mix of both options is likely to be needed.
There is potential to make better use of limited resources while maintaining or improving education results by learning from international experiences, and drawing on the growing body of research about what makes a difference to student achievement. However, productivity gains will be difficult to achieve where education providers' inputs (staffing, time, property and other resources) are tightly regulated and/or continually increased in inflation-adjusted terms. Greater productivity requires increasing flexibility around these areas, strengthening performance incentives and improving institutional design.
Reducing the quantity of publicly-funded education does not need to compromise overall educational achievement. A more targeted approach could improve access and equity while reducing costs. This may mean more targeting of ECE subsidies, tertiary student support and tuition subsidies and possibly having higher subsidies for students who will progress and complete their studies. Because untargeted subsidies drive up overall demand, they can mean that those from more disadvantaged backgrounds are "crowded out". For example, while the untargeted 20 Hours ECE policy has led to increased overall demand for places in early childhood centres, there is little evidence that this programme has improved access and outcomes for those who would benefit more over the long term.
Productivity options
Flexible resourcing
- Reducing constraints on staffing ratios, class sizes, staff deployment and the structure of teaching programmes. For example, research shows that smaller class sizes are a relatively expensive and ineffective option, although there can be benefits for disadvantaged children in the early years of schooling if very small classes can be sustained for several years.
- More flexible remuneration systems – that allow providers to reward high-quality teaching and allow wages to reflect differences in the balance of supply and demand across different parts of the teaching workforce.
- Enabling greater mobility of students and staff between providers and sub-sectors (eg, between early childhood education and primary schooling or between high school and tertiary education providers).
Strengthening performance incentives
- Having accountability and funding systems that recognise and reward providers for retention, achievement and completion rates.
- Recognising and rewarding innovation in the delivery of education programmes.
- Providing better information and choice for students and their families about education providers and the range of options available.
Institutional design
- Improving efficiency in operations and the uses of assets across the education sectors, by strengthening governance and management systems, and allowing providers to combine for staffing, procurement, capital investment and planning.
