How does New Zealand's education system compare? OECD's Education at a Glance 2010

2. New Zealand's investment in education

Expenditure on educational institutions

Although spending per student is below average OECD levels at most levels of education, total education expenditure as a percentage of GDP is above the OECD average. If we relate the spending per student to our GDP per capita level, we find New Zealand’s spending is a little below the OECD average.

Education spending¹ per student in New Zealand is below the OECD average for all but ISCED 4² (post-secondary non-tertiary) level of education, where spending per student was more than 50% above the average. Over all levels of education from primary to tertiary, New Zealand’s spending per student on education of US$6226³ is 24% below the OECD average. Spending too was further below that of other Anglophone countries such as Australia, Ireland and the United Kingdom, with which we sometimes compare ourselves. This largely reflects our lower economic resources: our GDP per capita in the reference year was 18% below the OECD mean and further below other Anglophone countries.

Apart from ISCED 4, New Zealand’s spending comes closest to reaching the OECD mean in pre-primary education, where it is 5% below the mean. This figure relates to the 2007/08 year, the first year of 20 Hours ECE.

When we relate the same education expenditure to GDP, we find New Zealand spends an above average percentage. In 2007 (2007/08 is the base year for New Zealand), New Zealand’s expenditure was 5.9%, above the OECD average of 5.7%. This level places it 10th highest among OECD countries.

A long time series of data is not available for total education expenditure for New Zealand. We can note though, across the OECD, education spending since 2000 has increased slightly faster than GDP. However, in the five years prior to 2000, it had grown slightly less. Some significant fluctuations have occurred in some countries. Underlying those results are the influence of demographics and the significance of the relative size of the population of compulsory schooling age. In the reference year, the share of population aged 5-14 in New Zealand was higher than all but Mexico, Turkey, Chile and Iceland. This is reflected in a slightly higher than average percentage of GDP being spent in New Zealand in primary and secondary education. At tertiary education level, our education expenditure⁴ as a percentage of GDP is in line with the OECD average. At pre-primary level, our expenditure relative to GDP is below average, though that reflects an earlier starting age of compulsory (primary) education in New Zealand than in many countries.

Education spending levels should be compared with demographic differences in mind. Demographic shifts over the past decade have been more marked in other countries than in new Zealand; further significant shifts are expected. EAG notes an expected decline in the population aged 5-14 over the period 2000-2020 in 27 out of 36 member and partner countries, yet significant increases in others. These changes are significant as the 5-14 age group covers compulsory schooling where participation and expenditure is most intense.  EAG notes the differing challenges that these increases and decreases will bring.
 
For New Zealand, EAG reports a slight decline expected in the 5-14 age population between 2010 and 2020, but more recent projections by Statistics NZ point to a moderate increase of the order of 8%. Greater changes are expected in Australia, Sweden and the United  Kingdom with increases over 10%, and in Japan, Korea and Mexico, where declines of more than 15% are expected.

In EAG OECD observes a correlation between spending per student on education institutions and GDP per capita. The correlation is stronger at primary and secondary levels than at tertiary. Taking the correlation into account, it appears that New Zealand spends closer to what might be expected relative to its ability to pay, but below OECD average levels.

This is borne out in a measure of education expenditure that is not affected by relative wealth or demographic factors, the average expenditure per student relative to GDP per capita. This measure also enables an assessment across countries of our relative expenditure on different levels of education.

On this indicator, New Zealand expenditure is highest relative to other countries at the pre-primary and post-secondary non-tertiary levels, where it is above average. The pre-primary level is 19% – that is, expenditure per student amounts to 19% of our GDP per capita. This is 7% higher than the corresponding OECD level of 18%. At primary, secondary and tertiary levels, New Zealand’s expenditure according to this measure is about 10% below the OECD average in each case. Overall (across education levels from primary to tertiary), New Zealand’s expenditure is 23%, which is 9% below the OECD average of 25%.

The overall level of spending measured by this indicator is on a par with Australia and close to that of Finland (24%), often the setter of performance benchmarks. It is well below the highest spending – United States (31%) and also the United Kingdom (27%) – but well above Ireland (19%).

Figure 1: Annual expenditure per student relative to GDP per capita (primary to tertiary education) (2007)

See source Table B1.4 in EAG 2010 for full notes.

Public expenditure on education

In New Zealand about 81% of total education expenditure is funded from government sources. This is slightly below the OECD average of 82.6%. It is also around the middle of a wide range, with around one third of countries’ governments funding more than 90% of total education expenditure and almost one third funding less than 75%, including Australia, the United Kingdom and the United States.

With the advent of 20 Hours ECE¹, the government share is now well above the OECD average in pre-primary education, ten percentage points higher (89.2% compared to an average 79.7%). At other levels it is slightly lower than average. Public expenditure at tertiary level, though below average (65.7% compared to an average of 69.1%), has grown more rapidly than in most countries: growth since 2000 is fourth highest in the OECD.

In interpreting these figures it is relevant to note the impact of international students. Fees paid by these students form part of the private funding that is measured; to the extent that we are interested in the public/private funding split as a measure of overall government support for education as a sector, international students depress the public expenditure proportion. As New Zealand has an above average proportion of international students in the tertiary sector, it is likely that it lowers the tertiary public funding proportion relative to the OECD average.

As a proportion of overall government expenditure, education spending² in New Zealand is one of the highest in the OECD: only Mexico and Turkey report higher proportions. That reflects a low level of public expenditure relative to GDP: New Zealand’s 32.1% in the reference year was higher than only Australia, Chile, Korea, Mexico and the Slovak Republic.

New Zealand’s public education expenditure as a percentage of GDP is in line with the OECD average. At levels below tertiary (excluding pre-primary education), it is slightly above and at tertiary level equal to the OECD average. Here we are measuring expenditure on educational institutions, a proxy for expenditure on educational inputs. When student support payments, such as student loans and student allowances, are taken into account (these constitute expenditure from a public accounts perspective, though not a national accounts perspective), New Zealand’s public expenditure on tertiary education, 1.7% of GDP, is much higher than the OECD average of 1.2%. It is notable that overall only Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) and Belgium record higher levels of public expenditure on education according to this measure.

Figure 2: Public expenditure³ on education as a percentage of GDP (2007)

See sources Table B4.1 and Table B5.3 in EAG 2010 for full notes.

New Zealand’s high level of public expenditure on tertiary education needs to be qualified by recognition of the treatment of student loan borrowings which are recorded in full in this expenditure measure. They amount to almost 30% of the recorded tertiary public expenditure. An outcome of this is that a relatively high proportion of New Zealand’s public tertiary education expenditure, measured according to this broader measure, is channelled via students rather than institutions.

OECD countries spend, on average, 19.5% of their public budgets for tertiary education on financial aid to students. New Zealand spends double this proportion. The high proportion in New Zealand is intended to maintain the diversity and open access of the New Zealand tertiary education system by providing students with access to tertiary education, regardless of their financial situation.

Other countries with a significant proportion of expenditure, also in the form of student loans, such as Chile, Norway and the United Kingdom, have a similar distribution of public expenditure to New Zealand. Some of New Zealand’s public expenditure in the form of subsidies to students is earmarked for tuition fees. For example, around 62% of student loan borrowing by students is for the purpose of paying tuition fees. As a result, the indicator based on the distribution of public funding between institutions and students does not provide an accurate measure of how public resources are used for educational inputs.

Footnotes

1. This is the first year in which the impact of 20 Hours ECE has been reported in Education at a Glance.
2. The proportion of total spending report here differs slightly from other measures reported by the Ministry and The Treasury due to slight differences in the definition of education expenditure.
3. Includes public subsidies to households, in particular student support such as student loans.
4. Education expenditure measured here is spending on educational institutions. It thus excludes student support spending, which does not constitute expenditure from a national viewpoint and spending made by individuals to other parties, such as purchase of educational materials not through institutions.
5. Broadly this covers advanced certificate education programmes. A relatively small proportion of education is delivered at this level. 
6. This is measured in US$ purchasing power parity terms for the 2007/08 year.
7. The measure presented here is based on expenditure on educational institutions, which approximates expenditure on educational inputs. It excludes transfer payments, such as student support payments. However, student support payments are included in most of the indicators relating to public expenditure.