20 years in the life of a small tertiary education system

A paper prepared for the 2012 general conference of the OECD unit Institutional Management in Higher Education, Paris, September 2012

Roger Smyth

Tertiary Education Group, Ministry of Education, New Zealand


This study examines two decades of reform in tertiary education in New Zealand.  It describes progress towards better performance from the system – increasing access while raising quality and managing costs. In the middle 1980s, New Zealand faced increased demand for tertiary education, but participation was low.  The modernisation of the economy would require improved skills in the population.  The solution in the 1990s was to create a new funding approach that was more responsive to demand and that encouraged competition between providers.  Government per-student funding was lowered, fee controls abolished and an income contingent loan scheme introduced.  The result was large increases in participation. But with increased participation came concerns about quality and how the skills produced by the system matched the needs of a changing economy.  And despite increased participation, there were complaints of poor access for some groups and questions of affordability. A new round of reforms aimed to address these problems without compromising the gains made in the 1990s. The government created a tertiary education strategy intended to ‘steer’ institutions without compromising their autonomy.  Performance elements in the funding system, a changed quality assurance system and explicit use of performance measurement to influence provider and student behaviour have been implemented.  There is a new focus on school/tertiary transitions. This paper traces the effects of two decades of reform in tertiary education in New Zealand. And it places the challenge of attaining and sustaining mass tertiary education in a small country in an international context.


The author acknowledges the support, advice and suggestions of John Brooker and Warren Smart.


New Zealand’s tertiary education system was in a constant state of change and reform over the twenty years from 1990 to 2010, as successive governments reoriented policy settings to meet problems.  The system changed from a highly regulated system that was unresponsive to students and employers to one that was characterised by high levels of autonomy and competition and great gains in participation and access.  That brought its own problems; as participation grew, the focus was on the volume, rather than the quality, of participation.  This led to further reforms that sought to balance responsiveness and access with quality of achievement and better alignment between the supply of and demand for skills.

This paper takes an historical view of the two decades of reform. We trace the two major swings in policy over that period and then describe the oscillations within each as governments have sought to modify the settings in the light of experience.

The context

In the 1980s, the New Zealand economy – and most aspects of New Zealand society – underwent major change. In response to an economic crisis, the incoming government in 1984 initiated a programme of extensive reform.  Over the following three years, the economy moved from one characterised by high levels of regulation, subsidised industry and high levels of protection of industry to a deregulated economy, open to competition, with a floating exchange rate, the abolition of subsidies, a shift to greater indirect taxation, the sale of state assets and reforms in the structure and operations of government (James 1992, El-Khawas et al 1997). El-Khawas et al noted in an OECD report on the New Zealand tertiary education system in 1997 that:

Within the OECD membership, it is difficult to identify a country … which has during the past decade embarked upon such a sustained and radical reform agenda as New Zealand.

The consequential changes in the industrial structure – together with a downturn in the economy – led to a shift in the demand for skills and were associated with higher levels of unemployment, especially for the young – among 15-19 year olds, the rate increased from 12% in 1986 to 24% in 1993. The modernisation of the economy needed different and improved skills in the population.   

One consequence of these problems was that New Zealand faced increased demand for education, and for tertiary education in particular. The retention of students through to the end of secondary school increased between 1980 and 1990 from 15% to 35%, meaning that more people were prepared for entry to tertiary education (Ministry of Education, 1995).  At the same time, the size of the population in the core age for tertiary education was growing (Ministry of Education, 1995).  But participation in tertiary education was low[1]

The tertiary education system was highly regulated and inflexible and unable to respond to growing demand or to the moves in the direction of demand – for instance from demand for degrees in science and arts to demand for degrees in commerce and computer science.  (Ministry of Education, 1995 and 2006a, McLaughlin 2003, El-Khawas et al 1997). 

In their historical account of tertiary education resourcing policy, Urlich, Smyth and Smart (2012) explain that funding for universities, based on a quinquennial system, took account of medium-term forecasts of student demand and university costs.  The funding for the quinquennium starting in 1984 was locked in at levels inadequate to meet the unforecast growth in demand.  And because funding was designed to cover nearly all of the costs of education and research, student tuition fees – the only part of the universities’ income automatically responsive to student demand – were too low to provide an incentive to increase enrolments.  As a consequence, the universities rationed access severely.

Polytechnics were closely managed by the government.  Their funding, based on arcane formulae, was also rigidly controlled. 

The government was concerned about skill levels in the work force and the apparent mismatch between the demand for and supply of skills.  It concluded that structural problems in the education system were contributing to these problems. And at the same time, New Zealand faced serious fiscal constraints.  So the government commissioned independent advice on how the tertiary education system might be restructured so as to achieve the identified needs, but in an affordable way.  This advice, the Hawke Report[2], ushered in two decades of reforms.

The first swing of the pendulum – the reforms of 1989-1999

A shift from low participation and high levels of regulation to a deregulated system, with a greater share of the cost borne by students and with high levels of competition.

Round 1: 1989/90

In 1989, the report Learning for Life set out the government’s policy decisions on Hawke’s proposals. The Ministry of Education’s (2006a) report to the OECD’s thematic review of tertiary education describes the changes.  The government decided:

  • to grant all tertiary institutions the right to self-government, with widely representational institutional councils responsible for governance, with autonomy enshrined in legislation and with a requirement to develop a charter that set out the institution’s mission and an annual ‘statement of objectives’ setting out enrolment forecasts
  • to create a uniform volume-driven funding system, applicable to all public tertiary education institutions, with rates set so as to take account of costs, and with annually set funding caps
  • to remove constraints on competition between institutions – for instance, the student support system was changed to remove disincentives on students to travel to study in institutions in cities other than their home town
  • to create a new quality assurance body, the New Zealand Qualifications Authority
  • to grant polytechnics and colleges the right to create and offer degrees
  • to create a standard tertiary fee that would require students to make a contribution towards the cost of their tuition to provide funds up front to create new tertiary places
  • to allow and encourage the enrolment of full-fee-paying students from overseas[3].

Learning for Life also indicated the government’s intention to negotiate with private financial organisations on a loans scheme to provide assistance towards the cost of fees (Urlich, Smyth and Smart, 2012).

The rationale for the changes to governance was to place responsibility for decision-making at the local level and to encourage innovation.  Competition was intended to keep institutions focused on students as their customers and to maintain quality.  A greater share of the costs was borne by students and their families and by international students, allowing the government to grow the system at lower cost, to encourage institutions to be responsive to students and to reduce the financial risks to institutions of expansion. The changes were designed to incentivise growth[4]

Under this arrangement, for most students, fees went up between 1989 and 1990 from $130 to $1,250[5], a rise of 860% (Urlich, Smyth and Smart 2012).

Higher fees recognised that the benefits of a person’s tertiary education are shared by the society (because the skills acquired would improve productivity once the graduate entered the work force) and the individual (who would command higher earnings as a consequence).

The 1989 reforms also provided powerful incentives to providers to enrol over their funded levels. For example, if a provider enrolled over its target equivalent full-time student (EFTS) count and carried those students as unfunded EFTS, it was given preference in the allocation of any additional EFTS funded by the government for the next year.

Participation in post-compulsory education doubled from 1985 to 1993, with the rate of increase reaching an annual average of 10% during 1990-93 (El-Khawas et al 2007).  Participation also rose among those aged 25+.

Round 2: 1991/92

In 1991/92, a new government introduced further reforms focused on further increasing tertiary education participation, essentially carrying the previous government’s moves:

  • The government funded more student places, with the cost to be offset by progressive reductions in tuition subsidy rates
  • The standard tertiary fee was abolished
  • All fee controls were removed – institutions were expected to charge fees to reflect their costs and to raise the revenue they needed
  • There were reductions in eligibility for and entitlements to the government living cost grants scheme, student allowances[6].

The risks to access posed by higher fees and reduced allowances were to be managed through the creation of a Student Loan Scheme, with interest-bearing loans provided by the government, and income-contingent repayments to be made through the tax system – along the lines of the model introduced in Australia in 1989.  The Student Loan Scheme allowed students to borrow their tuition fees as well as an allowance for their living expenses, thus ensuring students had the liquidity for enrolment.  The scheme was financed by the government because negotiations with potential private lenders stalled on the question of universality of access to loans, despite the promise of a government guarantee (Urlich, Smyth and Smart, 2012, Ministry of Education, 2006a).

These changes meant, in effect, that a part of the government’s financial support for institutions was to be channelled through students, rather than being provided directly by government. That is, students were being charged fees the cash for which (in most cases) was provided by the government by way of the loan scheme. One goal of this shift was to strengthen incentives on institutions to be responsive to and compete for students.

Fees rose substantially as the funding reductions took effect, while borrowing through the loan scheme grew as participation grew in the competition for students.

Figure 1: Typical fee for a Bachelor of Arts at a New Zealand university, 1982-2000

Source: Adapted from Smart (2009a), using data from Universities New Zealand

Figure 2: Total borrowing from the Student Loan Scheme by year

Source: Ministry of Social Development and Ministry of Education

Round 3: 1998/99

In the late 1990s, the government sought further change, initiating a number of reviews designed to look for ways to improve quality and the responsiveness of institutions to social and economic needs.  Work was initiated to produce a series of green papers – covering governance, the capitalisation of institutions, research funding, the structure of the tuition funding system and quality assurance arrangements.  Among the issues raised on the funding system were the constraints on private tertiary education providers, which at that time, had to compete for shares of a very small allocation of funding.

In the event, most of the proposed structural reforms were shelved.  But the changes made in 1999 had far-reaching effects (Ministry of Education 2006a):

  • Funding was made demand-driven – caps were removed and all valid enrolments by domestic students would be funded.
  • Funding rates were restructured so as to identify separately the research component and rates were adjusted to reflect the requirement for and costs of research at different qualification levels (though research funding continued to be allocated in a formulaic way on the basis of student enrolments).
  • At qualification level 3 and above, private tertiary education providers would be funded on the same basis as public institutions.

At around the same time, the three wānanga – tertiary institutions focused on Māori and teaching in a Māori context – which had been established as public institutions in 1993 began to assert their presence.

The combination of demand-driven funding, an entrepreneurial private provider sector and an expansionist wānanga sector led to a very great increase in enrolments. Some polytechnics, too, adopted an expansionist stance, growing enrolments in short qualifications in non-traditional areas, often targeted at non-traditional student markets (Ministry of Education 2006a).  Most of the growth was at lower qualification levels. These trends caused a rapid increase in (mostly unforecast) government expenditure.

Figure 3: Enrolment numbers in formal tertiary education in New Zealand, 1991-2010, in equivalent full-time student (EFTS) counts and Government funding in NZ$ billions[7]

In the years 1994 to 2004, the number of New Zealanders in tertiary education increased by 75%.  But 45% of that growth attributable to the increased enrolments of people over 40 years of age and more than three-quarters to people aged over 25.

The reforms of the 1990s – how well did they work

The student perspective

The student reaction to the shift from a government funded system to a cost-sharing model  was strident.  While research (Maani, 1997, Scott, 2009, Mahoney 2011) makes it clear that individuals share in the benefits from their tertiary education, student groups argued that:

  • students were the only group in society obliged to borrow for their living costs
  • tertiary education is a right, not a privilege, so there was no case for high fees
  • the student support and fees regimes would discriminate against people of low socio-economic status, especially Māori
  • the loan scheme discriminated against women because women’s earnings post-study would be lower.

In some universities, there were sit-ins and occupations to coincide with council fee-setting meetings. 

There was active student opposition to the Student Loan Scheme, calls for a return to universal student living allowance and for a fully government-funded system. (Urlich, Smyth and Smart 2012). Student lobbyists were successful in capturing much support for their case against loans from the general public, concerned in particular that loans would encourage young people to go overseas as a means of avoiding the repayment obligation, with the consequence that the public benefit of their education would be lost (Smart 2006).  Some people argued that loans would also inhibit home ownership and family formation, with one demographer describing the loan scheme as ‘anti-natalist’[8]

Research refutes (or at least contests) most of the student-led arguments against loans and the cost-sharing model[9]:

  • While there is a statistically significant relationship between loan size and the propensity to go overseas, the effect is slight – other unmeasured factors are much more powerful drivers of youth emigration (Smart 2006, Smyth 2012)
  • The evidence suggests that student loans have negligible or zero effect on family formation or home ownership (Scobie, Gibson and Le, 2005).
  • There is no evidence of socio-economic bias in the loan scheme.  And Māori participation rose faster than that of other groups in the years following the introduction of loans (Scott, 2003, Ministry of Education 2012).
  • While women may earn less than men, their repayment records – especially in the early years of repayment – tend to be better than men’s (Ministry of Education et al 2005). 

Other perspectives

By the end of the 1990s, further areas of dissatisfaction with tertiary education had emerged.

  • The competition for students was seen as leading to inefficient duplication of courses and to ‘herding’ behaviour among providers, with providers seeking to capture a share of the largest markets and those fields that had proved most receptive to advertising and promotions. This led to a continuing mismatch between the supply of and demand for skills. 
  • Encouraging competition between parts of the sector – between polytechnics and universities for instance – had led to a blurring of the distinctiveness of sub-sectors and academic ‘drift’ as polytechnics, especially those in larger cities, moved more of their activity into degrees while traditional vocational provision was de-emphasised (Billot and Codling, 2011).
  • The system was seen to be focused on growth, often at the expense of socially or economically important provision.  There were questions in the media about whether New Zealand could support such a large tertiary education sector – and in particular, whether the presence of eight universities in a country of 4 million people was spreading our intellectual (and financial) resources too thinly[10].
  • There was concern at the narrowness of the quality assurance system. Quality assurance was seen to be focussed on compliance with minimum standards and to take no account of the ‘fitness for purpose’ of qualifications.  The resourcing system rewarded volume sometimes at the expense of quality.
  • Research funding was allocated on the basis of performance in attracting enrolments, whereas research strength often didn’t match enrolments, meaning that there was a need to cross subsidise between disciplines in institutions[11].

The reforms of the 1990s had clearly increased participation and had addressed access concerns to an extent.  But the concerns cited above suggested that, now that participation was a less pressing concern, the policy settings needed to focus on system direction, quality and affordability. 

The second swing of the pendulum – the reforms of 2000-2009

A shift from a deregulated system that prioritised participation to one that retained institutional autonomy but attempted to steer the system so as to meet national needs better.

Addressing student concerns

A new government froze fees in 2000, increasing funding rates to compensate institutions for the loss of the revenue they would have received through fee rises[12].  At the same time, government initiated a series of changes to the loan scheme, reversing some entitlement cuts made by the previous government, and introducing loan interest concessions – in particular, removing interest on loans for full time students while they were in study.

The fee freeze was an interim measure while officials worked on developing a fee stabilisation regime that was sustainable but that prevented the very large fee escalation of the previous decade (Smart 2009a).

The government published a consultation document on the student financial support system in 2003, seeking to win a new consensus on loans, allowances and fees.  It signalled an intention to expand eligibility for student allowances and did so in a series of moves between 2005 and 2008 (Urlich, Smyth and Smart, 2012).

And in 2006, all student loan interest was removed for those who remain in New Zealand, a move that coincided with a shift to new international financial reporting standards.  These two coincident moves – the removal of interest and the change in accounting standards – led to substantial extra costs.  Under the new standards and taking account of the ‘time value of money’, around 45 cents in each dollar lent is treated as an expense, with 55 cents is recorded as an asset[13].   The cost of lending had, in effect, almost quadrupled[14].

The move to interest-free loans had the effect of creating (an uneasy) truce in the dialogue between government and students.  Public concerns about student support shifted from anxiety about the long-term impacts of student debt to concern about the increased cost of the scheme.  And leaders in the universities and polytechnics argued that the cost of student loans had shifted too much of government’s expenditure to students, with the consequence that this had shut off scope for increasing the funding of institutions[15] (Urlich, Smyth and Smart, 2012, New Zealand Vice-Chancellors Committee, 2008).

Addressing strategic and quality concerns – the first phase 2000 – 2003

The government established the Tertiary Education Advisory Committee (TEAC), in 2000 to provide independent advice on the long-term strategic direction of the tertiary sector[16].  The reforms that resulted sought to ensure greater connection between the tertiary education sector and the government’s national social and economic goals, but to do so without compromising the autonomy of institutions and self-management (Ministry of Education 2006a, TEAC 2001).

Proposals made by TEAC and adopted by the government included:

  • The creation of a tertiary education strategy (TES) and an associated statement of tertiary education priorities (STEP): The TES would be published by the government and would set out the outcomes sought from the tertiary education system.  The STEP would have a shorter time frame and would be used to focus the work of the sector on short/medium term priorities for the system.
  • A new system of planning for institutions to underpin government funding – charters and profiles: Charters would set out the mission of the institution and define how the institution would work towards the outcomes sought in the TES.  Profiles, developed annually by institutions, would be the basis of funding agreements and would explain how the institution would contribute to the TES and STEP over the short/medium term.
  • A new funding body – the Tertiary Education Commission (TEC): The TEC was established as a Crown entity, a body with its own board accountable to the minister, responsible for managing the sector, allocating funding and monitoring how institutions were meeting the targets set in profiles[17].  The minister would set the quantum of funding for the sector but it was up to the TEC to determine how much was to go to each institution, within the policy parameters set by government.
  • New mechanisms for the funding of research – the Performance-Based Research Fund (PBRF) and Centres of Research Excellence (CoREs):  Research and tuition funding were to be separated.  PBRF funding would be driven by research performance – with peer review of research quality plus a component that reflected the performance of institutions in raising external research income and in research degree completions.  The CoREs were groupings of researchers in areas of established research excellence of importance to New Zealand.  Each CoRE was hosted by a university but also had members in other universities and in wānanga or government research institutes.  The CoREs compensated for the lack of critical mass in a small country with a widely distributed population by creating research networks.[18]

The creation of the tertiary education strategy and the requirement for charters and profiles were not intended to reduce institutional autonomy.  The intention was to define broad directions that would ‘steer’ the system and allowing self-government within those parameters.  In effect, in return for government funding, institutions were expected to deliver on government expectations.

The government retained the existing quality assurance system and the institutional governance model. It introduced a new array of special-purpose ‘strategic’ funds that were intended to encourage providers to align their work more closely with government’s goals for the system but retained demand-driven funding for tuition, while signalling an intention to restructure tuition funding to include a component that reflected institutional performance[19]

Enrolments at private tertiary education providers were capped in 2003 but those providers were able to over-enrol, so many took unfunded students, financing their tuition from fees[20] that were greater than the marginal cost imposed by extra students.

How well did these changes work

The new research funding mechanisms changed the culture in universities (Billot and Codling 2011, Bakker et al 2006[21]) and led to a greater focus on research and to improvements in research performance (Smart 2009b). The graph below traces the improvements in bibliometric measures resulting over the period of the changes.

Figure 4: New Zealand universities’ share of the world’s indexed research publications and citations, 1996 – 2009

Source: Thomson Reuters

The TES-STEP-charter-profile thread was thought ‘fascinating’ by the external reviewers who visited New Zealand during the OECD thematic review of tertiary education (Goedegebuure et al, 2007).  Goedegebuure et al noted that ‘…There is an obvious alignment of the tertiary education sector with the country’s objectives … there is a definite realisation of this within the [institutions] …’ But, the first TES had a broad and inclusive scope, so it didn’t force institutions to make hard choices.  This, together with the presence of demand-driven funding and weak monitoring instruments resulted in a level of change that was much less than the government had sought.  An evaluation of the first TES (Ministry of Education 2006b) found evidence that many institutions had used the strategy ‘…as a framework for justifying and advocating their own strategy and direction …’, effectively ‘retrofitting’ their pre-existing institutional approaches to ensure there was apparent conformity to the STEP and to the TES.  In other words, they hadn’t changed what they planned to do, so much as how they presented what they planned to do.

Demand-driven funding continued to expose the government to fiscal risks that ministers were concerned to manage better.

The quality assurance approach had been left intact, remaining focused on compliance with minimum standards and taking little account of relevance or broader ‘value’ of qualifications.  With funding still demand-driven, there were persistent concerns about quality; there were well-publicised instances of where quality and relevance/strategic value were sacrificed in the pursuit of volume[22]

The system had moved from one where funding was largely formulaic (and hence, relatively low compliance cost) to one where the transaction costs were much higher.  The special purpose strategic funds had been commended by external reviewers (Goedegebuure et al, 2007, Santiago et al, 2008).  But the proliferation of funds had high compliance cost for institutions and encouraged institutions to focus much of their energy on seeking funding[23].

Addressing strategic and quality concerns – the second phase 2006 – 2009

Responding to the problems noted above, the government decided:

  • to simplify the system governance framework, while retaining the principles underpinning it:  The TES was to be retained but made tighter and more directive, while the STEP would be abandoned. Charters and profiles would be replaced by simpler funding agreements with the TEC, called investment plans, which would set out the level of funding to be provided and performance targets for the following period.
  • to abandon demand-driven funding:  The allocation of funding for tuition at each institution would be determined as part of the investment plan agreement and then capped at that level.  Funding caps would reflect demand.  Institutions had to achieve 97% to retain funding and would get no extra funding if they took students above the cap.  They were expected to manage enrolments to 103% of the cap. This change was designed to reduce the incentives to prioritise volume and to force institutions to manage their intakes.
  • to reform the quality assurance system outside the universities: The previous programme quality assurance system and audits of providers had a focus on compliance with minimum standards.  The new system would seek continuous improvement, using self-review (to reinforce institutional ownership of quality) complemented by external evaluation and review (where external experts would review institutional performance on a number of evaluation questions focused on such things as: learner achievement, the value of outcomes, the effectiveness of teaching and of services that support learning, and how well programmes match learner/stakeholder needs.)
  • to increase the powers and responsibilities of the TEC:  The TEC was given a greater role in policy advice and was expected to take responsibility for stakeholder engagement at a system level, where previously this was seen as an institutional requirement.

How well did those changes work.  And what has happened since

The new TES and the investment guidance were more specific and laid out clearer expectations of different parts of the system.  The introduction of the funding caps has reduced incentives to expand enrolments at any cost.

It is too early to evaluate the new quality assurance arrangements fully, but they are working better than the former system.  

The large number of complex funds remained.  But a new government in 2009 made further changes, reducing the scope of the TEC and refocusing the organisation on managing the investment process, funding and monitoring institutional performance.  The TEC eliminated its stakeholder engagement function.  The number and complexity of the funds administered by the TEC and open to institutions was reduced and funding was simplified. Fee controls were also simplified.

The TEC began a slow move towards improving monitoring of institutional educational performance.  Provider-level educational performance indicators are published and now form the basis of a 5% performance element in funding.  Work has started on developing institutional and qualification-level indicators of the employment outcomes of tertiary education.

The government changed the governance model in polytechnics, moving to smaller councils, half of whose members would be appointed by the minister on the basis of their governance expertise and strategic experience. The government has signalled an intention to do the same for universities and wānanga.

The government has also sought to reduce the cost of the loan scheme, by reducing eligibility for loans for students who are unlikely to succeed in or benefit from tertiary education.  This, the new fee controls and some funding adjustments have begun to make (small) shifts in the share of funding that goes into supporting students and funding for institutions.

After two decades of major changes in direction, it is tempting to see the current changes as fine-tuning, rather than directional. There have been major reviews of aspects of the system – a policy review of industry training has been completed and a review of the research funding mechanisms is soon to get under way – but these moves occur within the context of the existing system framework.

What are the emerging and new priorities

A major problem left untouched by the two decades of reform described above is youth transitions.  Despite improved school retention, around 30% of people who leave school do so without having gained a level 2 qualification[24], the level of qualification that opens up opportunities to seek sustainable and meaningful employment, enter meaningful vocational education or take qualifications that facilitate stair-casing to degree-level study. In particular, there is a significant gap in achievement for Māori and Pasifika[25] students. 

Around 20% of New Zealand school leavers don’t participate in the further or higher education or training system by the age of 20.  But among those who leave school without a level 2 qualification, the proportion is around 40% (Ministry of Education 2011b).  In other words, those who do poorly at school are the least likely to access further education.

These figures are reflected in data on the number of young people not in employment, education or training (NEET) and in youth unemployment. 

Table 1: Not in employment, education or training (NEET) rate and unemployment rate for persons aged 15-24 years

NEET rate10.5%10.2%10.4%10.4%13.4%13.1%12.5%
Unemployment rate9.5%9.4%9.4%10.7%16.3%18.2%17.4%

Source: Statistics New Zealand

Unemployment is disproportionately experienced by the young – by young people with low qualifications especially.  The downturn that accompanied the global financial crisis was especially hard on youth.

Around 20% of New Zealand school leavers don’t participate in the further or higher education or training system by the age of 20.  But among those who leave school without a level 2 qualification, the proportion is around 40% (Ministry of Education 2011b).  In other words, those who do poorly at school are the least likely to access further education.

The academic pathway into university level study is relatively well-defined for secondary students in New Zealand as there is a defined university entrance standard. The pathway into post-school vocational study though is much less clear. There are a myriad of study options, both in terms of qualifications and providers, all with their own entrance requirements.

This analysis led the government in 2009 to set as a target that by 2016, 85% of young New Zealanders will have attained a level 2 qualification by their 19th birthday.  Government has developed a suite of programmes, under the banner Youth Guarantee, designed to improve outcomes for young people. The Youth Guarantee comprises:

  • coherent vocational pathways that students can choose, offered by both secondary schools and tertiary providers – to clarify learning options for students not following the traditional academic pathway
  • alternative learning options for senior secondary aged students, including
    •   Trades Academies and a tertiary high school – which provide an opportunity for young people enrolled in secondary schools to undertake enriched trades training alongside their school studies, mostly at polytechnics
    •   Fees-free places – funding for the provision of qualifications in polytechnics and private tertiary education providers with additional support for learners to cater for people aged 16-17 at risk of ending up without qualifications
  • improving access to independent and objective career information and advice
  • reviewing funding and accountability settings for schools and tertiary providers to make it easier different parts of the education system to work together to develop learning arrangements that work for more students.

At the same time, active labour market programmes targeted at the young have been brought into the Youth Guarantee suite.


Tertiary education in New Zealand provides a case study of the public policy process.  As problems, concerns and issues have been developed, we have seen grand strategic moves that redefine the direction of the system in substantial ways.  Each major swing has been followed by a period of evaluation and modification – oscillations, rather than pendulum swings.

We have seen the system move from high levels of regulation to a system that was as deregulated as any and more so than most, and then to find new ground in settings that see a system in which autonomous institutions are managed in ways that help them meet national needs.

Tertiary education systems are inherently complex and they are critical contributors to a country’s development and to the well-being of its population.  The complexity poses particular difficulties for governments seeking to improve the outcomes from the system.  In the New Zealand context at least, the passage to a stable system over 20 years has involved a series successive approximations.   But from a system in constant change, we have now come to a measure of stability.


Bakker L, J Boston, L Campbell and R Smyth eds (2006) Evaluating the Performance-based research fund: framing the debate, Institute of Policy Studies, Victoria University of Wellington

Billot J and A Codling (2011) Lost in translation: aligning strategies for research in New Zealand, Journal of Higher Education Management and Policy, OECD Publishing

Butterworth R and N Tarling (1994) A shakeup anyway – government and the universities in a decade of reform, Auckland University Press

Goedegebuure L, P Santiago, L Fitznor, B Stensaker, M van der Steen (2007) Thematic review of tertiary education: New Zealand country note, OECD Publishing

El-Khawas E, M Hoffert, M Skilbeck, A Wagner (1997) Thematic review of the first years of tertiary education: Country note: New Zealand, OECD Publishing

Eppel E (2009) The contribution of complexity theory to understanding and explaining policy processes: A study of tertiary education policy processes in New Zealand, PhD thesis, Victoria University of Wellington.

James C (1992) New territory – the transformation of New Zealand 1984-92, Bridget Williams Books

Maani S (1997) Investing in minds: the economics of higher education in New Zealand, Institute of Policy Studies, Victoria University of Wellington.

Mahoney P (2011) What do men and women earn after their tertiary education? Ministry of Education www.educationcounts.govt.nz

McLaughlan, M (2003) Tertiary education policy in New Zealand, Fulbright New Zealand, http://www.fulbright.org.nz/news/2002-mclaughlin/

New Zealand Ministry of Education (1989) Learning for life, Ministry of Education

New Zealand Ministry of Education (1995) OECD thematic review of tertiary education policies: Submission prepared by the New Zealand Ministry of Education: Ministry of Education

New Zealand Ministry of Education (2006a) OECD thematic review of tertiary education: New Zealand country background report, Ministry of Education, www.educationcounts.govt.nz

New Zealand Ministry of Education (2006b) Getting started, Ministry of Education, www.educationcounts.govt.nz

New Zealand Ministry of Education (2011a) Student Loan Scheme annual report, Ministry of Education, www.educationcounts.govt.nz

New Zealand Ministry of Education (2011b) Tertiary education statistics: transitions from school to tertiary education,Ministry of Education, www.educationcounts.govt.nz

New Zealand Ministry of Education (2012a) What we get for what we spend, Ministry of Education, www.educationcounts.govt.nz

New Zealand Ministry of Education (2012b) Profile & trends; New Zealand’s tertiary education sector, Ministry of Education, www.educationcounts.govt.nz

New Zealand Ministry of Education, Inland Revenue and Ministry of Social Development (2005) Student Loan Scheme annual report, Ministry of Education, www.educationcounts.govt.nz

New Zealand Ministry of Education and Transition Tertiary Education Commission (2003) Excellence, relevance, access, Ministry of Education

OECD (1998) Redefining tertiary education OECD Publishing

OECD (2011) Education at a glance, OECD Publishing

Santiago P, K Tremblay, E Basri and E Arnal (2008) Tertiary education for the knowledge society OECD Publishing

Scobie G, J Gibson and Le Trinh (2005) Household wealth in New Zealand Institute of Policy Studies, Victoria University of Wellington

Scott D (2003) Participation in tertiary education Ministry of Education www.educationcounts.govt.nz

Scott D (2009) What do students earn after their tertiary education? Ministry of Education www.educationcounts.govt.nz

Smart W (2006) Do student loans drive people overseas: what is the evidence? Ministry of Education www.educationcounts.govt.nz

Smart W (2009a) Counting the cost: an analysis of domestic tuition fees Ministry of Education www.educationcounts.govt.nz

Smart W (2009b) Making an impact Ministry of Education www.educationcounts.govt.nz

Smart W, R Smyth, S Hendy and C Sissons (2013) CoREs and effect Ministry of Education www.educationcounts.govt.nz

Smyth R and D Spackman (2012) Going abroad Ministry of Education www.educationcounts.govt.nz

Smyth R and W Smart (2008) Measuring up – how does New Zealand’s tertiary education system compare Ministry of Education www.educationcounts.govt.nz

TEAC (2001) Shaping a funding framework Tertiary Education Advisory Commission

Urlich, M, R Smyth and W Smart (2012) The New Zealand Student Loan Scheme – ensuring access to tertiary education while maintaining affordability to the taxpayer, Ministry of Education www.educationcounts.govt.nz

Chronology of key reforms of the New Zealand tertiary education system
1970 – 1989Before the reforms:   The universities were regulated through the University Grants Committee (UGC). The UGC managed the system’s accountability to government and allocated government funding to universities under a quinquennial system, using the equivalent full-time student (EFTS) as a funding metric.While the universities funding was received as a bulk fund, the government controlled major capital investments.The management of the institutes of technology and polytechnics and colleges of education was closely controlled by the Department of Education.Tuition fees were low and much of the fee was paid through the student support system.A tertiary grants system supported students’ living costs.  
1989 – 1990The first major shift – the first round of reforms:   The Education Act 1989 was enacted – setting the statutory framework for all tertiary education. The UGC and the Department of Education were abolished. The Ministry of Education and NZ Qualifications Authority (NZQA) were created. All tertiary education institutions (TEIs) were given autonomy.  Councils had a governance role, with chief executive responsible for management. Funding was delivered to all as a bulk fund, using EFTS as the metric, with the amount of funding dependent on the number of EFTS in different funding categories. The principle of equal funding for similar courses underpinned the funding system. TEIs had control over their capital spending.Quality assurance responsibilities were split between the NZQA and the NZ Vice-Chancellors’ Committee.Awarding of non-university degrees was permitted.The standard tertiary fee was created.The tertiary grants scheme was replaced by student allowances – with targeting on the basis of parents’ income for those under 20 years.TEIs were free to enrol international students on a full-cost-recovery basis.  
1991 – 1992The first major shift – the second round of reforms:   The standard tertiary fee was abolished, with TEIs given the freedom to set their own fees, including the right to set fees with differences between levels of study and/or fields of study.Some limited funding was made available for private training establishments (PTEs).  Targeting of student allowances was extended to the age of 25 years.The Student Loan Scheme was created.A moving cap on the number of EFTS places that could be funded was set.Industry Training Act was enacted – reforming vocational training.  
1993 – 1998Over this time, additional spending was put into funding more student places.  There was also a series of funding rate cuts.  Fees rose in consequence.  
1997 – 1998The government developed a series of green and white papers on tertiary education.  While many of the reforms proposed in these papers were never enacted, some of the changes were implemented – for instance, improved monitoring and improved information systems.  
1999The first major shift – the third round of reforms:   The moving cap was lifted – funding in the TEIs became demand driven.At qualification levels 3 and above, the funding of PTEs was put on a level footing with TEI tuition funding.  
2000 – 2001The second major shift – the first round of reforms   The Tertiary Education Advisory Commission (TEAC) was established to map out a new direction for tertiary education.   TEAC proposed:   The creation of a tertiary education commission – a new government agency to allocate government fundingThe creation of a tertiary education strategy and statement of tertiary education priorities to ensure better alignment of tertiary education with national prioritiesThe system of charters and profiles to help the commission influence the direction of tertiary education organisations and to improve alignment with the strategyThe separation of research funding from funding for teaching and learning  
2000The government introduced a fee freeze, providing extra funding to tertiary education providers in exchange for an undertaking to hold fees. Fee stabilisation remained in place for three years.   The government also moved to write off the interest of student loans for those in study.  

Limits were placed on funding for private tertiary education providers.   The first Centres of Research Excellence were established.  
2002 – 2005Amendments to the Education Act 1989 gave effect to many of the TEAC proposals, including the creation of the Tertiary Education Commission (TEC). The legislation also provided for the Performance-Based Research Fund (PBRF) and for fee stabilisation/controls.   The Tertiary Education Strategy 2002/07 was published.    Government Statements of Tertiary Education Priorities were published in 2002, 2003 and 2005.   The PBRF was phased in.   The fees freeze was replaced by a system that allowed fees to rise subject to limits.   Limits were placed on growth in some areas of tertiary education provided by public tertiary education institutions.   Government announced the intention to remove interest on student loan scheme borrowers for those who remain in New Zealand.  
2006 – 2008The second major shift – the second round of reforms:   Governance and planning systems were simplified:   The requirement on government to publish a Statement of Tertiary Education Priorities was removedCharters and profiles were abolished, to be replaced by institutional investment plans, negotiated between providers and the TEC, that set out performance targets and that became the basis of funding allocations.   Demand-driven funding was removed, replaced by funding and EFTS targets that would be subject to a 3% tolerance band, meaning that institutions were expected to reach at least 97% of the allocated total but were expected to keep enrolments to no more than 103%.  
2009-10The second major shift – the third round of reforms   The funding system and fee stabilisation mechanism were simplified.   Changes were made to the governance model in polytechnics, reducing the size of councils and ensuring that at least half the members were appointed by the Minister for Tertiary Education.   Limits were placed on access to student loans (for instance an academic performance test) aimed at focusing loans on those more likely to succeed in and gain value from tertiary education and at reducing some of the cost of the loan scheme.   Provider performance data published and up to 5% of funding to be dependent on meeting performance thresholds.   The intention to publish employment outcomes data at provider level was signalled.   A range of secondary/tertiary transitions programmes – the Youth Guarantee – was created.

(Adapted and extended from Ministry of Education (2006a))


[1] While participation in education was low in New Zealand in the mid-1980s, that was true also of a number of other developed countries – for instance, participation of 18-21 year olds in formal education in New Zealand in 1985 was above that of .Norway, Sweden, Denmark and Germany. (OECD, 1998, page 21).

[2] The Hawke Report was prepared by Gary Hawke, professor of economics at Victoria University of Wellington.

[3] The summary here is drawn from Ministry of Education (1989) and Smart (2009).

[4] Butterworth and Tarling (1994) offers a view of the changes from the perspective of the academic community.

[5] All amounts in this paper are quoted in New Zealand dollars.

[6] Student allowances, introduced in 1989, involved targeting for students under the age of 20 on the basis of parental incomes.  But the targeting was light and there had been wide access to allowances.

[7] There was also a substantial expansion in community education in polytechnics.  The funding that flowed from this trend is excluded from Figure 3.

[8] This statement is attributed to Ian Pool, a demographer at the University of Waikato, and has been quoted (repeatedly) by the national students representative body.

[9] In large measure, the students were successful in winning public support because the complexity of the loan scheme meant that there was no hard information to counter the students’ arguments until 2004. 

[10] This claim was made, in particular, by the then head of the grouping of government research institutes.

[11] This summary is drawn from Ministry of Education (2006a)

[12] Participation in the fees freeze was voluntary – an institution was free to increase fees and forego the extra funding.  All public institutions and most funded private providers accepted the offer and froze their fees.

[13] The accounting treatment of loans and the consequent treatment of the costs is summarised in Urlich, Smyth and Smart (2012) and explained in greater detail in Ministry of Education 2011b).

[14] In 2005, loans were expensed at 11.4 cents in the dollar lent.  The 11.4 cents was a provision for doubtful debts.  Under IFRS, loans had to be expensed through an ‘initial fair-value write down’.  In 2007, the write down was around 41 cents in the dollar.  Much of that increase is attributable to the accounting standard change, but part derives from the removal on interest.

[15] New Zealand devotes a very high proportion – more than 40% – of its public spending on tertiary education to student financial aid (OECD, 2011).  This is one of the highest in the OECD.  But part of that aid is the loans for tuition fees – in effect, directing government resourcing for institutions through students.  Adjusting for that effect reduces the percentage of the spend  that goes to financial support for students to a little over 20%, comparable to Sweden where there are no fees for domestic students.  (Urlich, Smyth and Smart, 2012, Smyth and Smart, 2008).

[16] The members of TEAC were academics and leaders from business, science and other fields.

[17] The idea of a funding body at arm’s length from the minister was suggested in the Hawke report in 1988.  The suggestion was not adopted by the government at that time, but was implemented 13 years later.

[18] The list above is summarised from Ministry of Education (2006a). Eppel (2009) offers a perspective on the dynamics of these changes.

[19] While the government talked of this from 2003, it took until 2009 to develop the approach.

[20] Paid through the Student Loan Scheme – and hence, subsidised by government.

[21] Bakker et al is a collection of essays and analyses of the PBRF, mostly by practicing academics.  The chapters that discuss culture change are chapters 9, 13-14.

[22] It should be noted that the universities had their own quality assurance system that sat apart from the approach taken in the rest of the sector.  The comment about compliance with minimum standards mainly applies to the latter.  But this is not to suggest that the university quality assurance system was working well.

[23] This comment is attributable to the then Vice-Chancellor of the University of Auckland who made this statement to the OECD thematic review group during their visit to New Zealand.  This view was reinforced by Dave Guerin, Chief Strategist of the consulting company Education Directions, and formerly executive director of Institutes of Technology and Polytechnics of New Zealand.  Guerin made the observation in 2011 in his email newsletter EdInsider that the devotion to seeking funds diverted institutions from the core role of delivering quality. 

[24]The senior secondary school qualification in New Zealand, the National Certificate in Educational Achievement (NCEA) has three levels.  Level 2 is normally done in the penultimate year of secondary school.

[25] The term Pasifika is used in New Zealand to refer to New Zealanders of with Pacific Island ancestry.

%d bloggers like this: