Education

New Zealand's education system is the means by which people develop skills and knowledge. People improve not only their own living standards but also the living standards of the country as a whole, through increased productivity and economic growth. Our predominantly state-funded system enables social mobility - reflecting the belief held by many New Zealanders that access to a basic education should be largely independent of parental means.

The discussion in this section draws on the Treasury (2013). The Education Sector Over the Long Term. Background paper for the 2013 Statement on the Long-Term Fiscal Position. Available at www.treasury.govt.nz/government/longterm/fiscalposition/2013.

Most education funding in New Zealand comes from the Government, although there is still a significant role for private funding, particularly in early childhood and tertiary education. Total government spending in education - early childhood, primary, secondary, and tertiary - was 6.1% of GDP in 2010, having risen from 5.1% of GDP in 2001.[100]

Some growth in education spending reflects positive trends. For example there is more use of early childhood education, which is increasingly recognised as the foundation for success at later levels, and also increased participation in tertiary education, making our workforce more skilled. And some of the growth in education spending reflects discrete policy choices. The introduction of the “20 Hours” early childhood education subsidy is a good example of this. This policy transferred part of the cost of early childhood education from families to the Government, with little immediate impact on participation rates.

Our education system performs well relative to our OECD counterparts. The Programme for International Assessment (PISA) provides comparable data on the knowledge and skills of 15 year olds, the age at which most students are nearing the completion of compulsory schooling. As Figure 19 shows, New Zealand's PISA scores are comfortably above the OECD average:

Figure 19 New Zealand PISA scores versus OECD average

Although the overall PISA story is positive, there are some concerning points that this table does not show:

• Despite our relatively overall high scores, the scores for Māori and Pasifika students are below the OECD average.[101]
• Other than in science, our average PISA scores have not improved over time.

In spite of the rise in education spending over the past decade, education is unlikely to be a particular area of spending pressure in the future. But it is unlikely to be a significant source of savings either. There are forces pulling in both directions:

• Younger people, who are the recipients of almost all education spending, will shrink as a percentage of the population (although their actual numbers will grow slightly).
• But we think that more young adults are likely to take up tertiary study in the future.

These two trends are expected almost to cancel each other out. The projections in our “Resume Historic Cost Growth” scenario show education spending declining from around 6.1% of GDP in 2010 to more like 5.2% of GDP in 2060.

It may be that future governments wish to reduce education spending below this projected level to allow other spending areas to grow. And there might be ways of doing this without sacrificing educational outcomes. For example, subsidies for early childhood education are currently universal. Some of these subsidies may be going to families that would send their children to early childhood education regardless of the subsidy. There could be ways to target early childhood education spending, ensuring it goes to those who need it.

Similar targeting would be possible in tertiary education. Currently, the Government funds about 70% of the costs of tertiary study, leaving students to fund the remaining 30% themselves. We could, for example, move to a 60-40 split, alongside targeted assistance for lower-income students to ensure they still have access to higher education.

Productivity gains - that is, better education at no extra cost, or the same services at less cost - can also play a part. Our “Resume Historic Cost Growth” scenario assumes productivity gains similar to what we have had in the past, but there may be ways to increase these gains. For example, technological gains could reduce costs or back office support and leadership teams could be clustered. To the extent that these represent genuine productivity gains they are a good idea regardless of whether there are immediate fiscal pressures. But fiscal pressures can provide an impetus to seek gains where otherwise the status quo might prevail.