Indicators Live: Education at a Glance 2009, Results for New Zealand

2. What do we spend on education?

Expenditure on education is an investment that boosts productivity, facilitates economic growth, reduces inequality among social groups and contributes to the personal and social development of individuals. Education is a sector of the economy where all governments intervene to promote access to educational opportunities.

Education at a Glance provides a range of indicators on education expenditure.  In this report we focus on key expenditure indicators that measure the investment in education in New Zealand.

Expenditure measures in Education at a Glance are commonly limited to educational institutions on the basis that most resources used in the education process, such as government funding of institutions and student fees, are channelled through the institutions providing the educational services.  Indicators should be interpreted with this limitation in mind.  Three indicators focusing on total expenditure are analysed and presented below, each providing an insight into how our investment in education compares internationally.

At a per-student level, New Zealand’s expenditure levels, measured in US dollars purchasing power parity (PPP) terms, are below average, reflecting our below average national income.  In 2006, New Zealand’s GDP per capita was 15% below the OECD country average.  This does not necessarily mean that the quantity of education resources per student is lower, as the PPP index does not specifically account for the cost of education services in each country.  

On the other hand, expressed as a percentage of GDP, our education expenditure consistently ranks very high and is comfortably above the OECD average.  This is partly explained by the demographic structure of our population and the proportion in the main education age groups, along with our relatively high proportion of international students.

Finally a measure is presented that avoids the interpretation difficulties of PPP rates, relative wealth and student numbers – expenditure per student as a proportion of GDP per capita.  This measure is best placed to address the question of whether our expenditure is what might be expected.  This shows that although New Zealand’s position is above average at some education levels (pre-primary, post-secondary non-tertiary and tertiary type-B (diploma) level), it is below average overall.

2.1 Annual expenditure on educational institutions per student, for all services

This indicator provides an assessment of the investment in each student. Expenditure on educational institutions per student is largely influenced by teachers’ salaries, pension systems, instructional and teaching hours, the cost of teaching materials and facilities, programme orientation (e.g. general or vocational) and, at some levels of study, the degree to which governments wish to share costs with users. Policies to attract new teachers or to reduce average class size or staffing patterns have also contributed to changes in the expenditure on educational institutions per student over time.

As represented by the simple average of all OECD countries, OECD countries spend US$7,840 annually per student from primary through tertiary education levels.  This amounts to US$6,437 per primary student, US$8,006 per secondary student and US$12,336 per tertiary student. On average, all OCED countries spend nearly twice as much per student at the tertiary level than at the primary level. However, these simple average figures mask a broad range of expenditure patterns across countries.

In 2006, New Zealand’s per student annual expenditure on educational institutions was US$6,222; US$1,618 less than the OECD average.  Figure 1 presents per student annual expenditures for New Zealand, Australia, the United Kingdom, Ireland, the United States and the OECD average for 2006. Relative to the countries with which we usually compare ourselves, New Zealand has the lowest annual expenditure on educational institutions per student at all levels (see Figure 1).

Figure 1. Per student annual expenditure to educational institutions for selected OECD countries (2006)

Source: OECD, Education at a Glance, Table B1.1a

Per student expenditure varies substantially across levels of education.  At the pre-primary level, New Zealand’s expenditure per student is very close to the OECD average of US$5,260. Note that figures are for 2006 (2006/07 in the case of New Zealand) and pre-date the introduction of significant funding particularly in early childhood education in New Zealand in 2006/07.  Several OECD countries spend between US$7,000 and US$9,000 annually at this level, including Iceland, Italy, the United Kingdom, and the United States. However, OECD countries have different rules for the commencement of compulsory education and a number do not achieve full enrolment (defined by OECD as enrolment rates exceeding 90%) until age 6.  New Zealand’s pre-primary education sector, which comprises only ages 3 and 4, covers a shorter period than some countries making comparisons difficult for this education level.

At the primary level, New Zealand spent US$4,952 per student in 2006 compared to the OECD average of US$6,437.  Our expenditure at secondary level is more than US$1000 higher than at the primary level, though almost US$2,000 less per student than the OECD average.  The OECD average is pulled upwards by countries such as Luxemburg, Switzerland, Austria and the United States that spend between US$10,000 and US$18,000 annually on students in secondary educational institutions.

2.2 Expenditure on educational institutions as a percentage of GDP, by level of education

Expenditure on educational institutions as a percentage of GDP shows the proportion of national resources devoted to education. This includes government subsidies plus tuition fees and other contributions from students, households and other private entities to education.

In 2006, New Zealand ranked seventh highest in terms of expenditure on educational institutions as a percentage of GDP, behind Iceland, the United States, Korea, Denmark, Canada and Sweden. Figure 4 shows expenditure on educational institutions as a percentage of GDP for New Zealand, Australia, Ireland, the United Kingdom, the United States and the OECD average.

Figure 2. Expenditure on educational institutions as percentage of GDP by levels of education for selected OECD countries (2006)

Source: OECD, Education at a Glance, Table B2.2

New Zealand’s expenditure on educational institutions for all levels of education as a percentage of GDP is substantially higher than Australia’s, which is closer to the OECD average. Across the OECD, expenditure on educational institutions as a percentage of GDP varies substantially by levels of study. For example, in 2006 for pre-primary education, levels varied from 0.1 percent (Australia) to 0.9 percent (Iceland and Israel) and the OECD average was 0.5 percent.  This substantial variation reflects countries’ differing starting age for compulsory education.  New Zealand’s expenditure on pre primary education was 0.3 percent of GDP, below the OECD average, but reflecting its relatively early school starting age.

On average, OECD countries spent 3.7 percent of their GDP on primary, secondary and post secondary non-tertiary educational institutions in 2006. With an expenditure of 4.3 percent of GDP, New Zealand ranks third highest (behind Iceland and Denmark) in spending on these levels of education.

In New Zealand and across the OECD, about one quarter of education spending is made at the tertiary level.  New Zealand’s expenditure of 1.5 percent of GDP is slightly above the OECD average of 1.4 percent.  It should be noted that some countries with higher tertiary education expenditure, such as Canada, Japan, Korea and the United States also have the highest average tuition fees.  The level of fees paid by tertiary students in New Zealand and other countries is discussed later in this paper.

2.3 Expenditure on educational institutions as percentage of GDP per capita

This indicator measures spending per student taking into account a country’s relative wealth.

Results for different education level spending in selected countries are presented in Figure 3. It is apparent that taking the wealth of a country into account changes New Zealand’s position among its peers. Using this measure at pre-primary level, New Zealand’s expenditure of 19 percent is above the OECD average of 18 percent, (see Figure 1); as is its expenditure at post-secondary non-tertiary education level (21 percent compared to OECD average of 15 percent).  It should be noted, though, that many countries are unable to isolate expenditure for the latter level of education.

Figure 3.  Per student annual expenditure to educational institutions in relation to GDP per capita for selected OECD countries (2006)

Source: OECD (2009), Education at a Glance, Table B1.4

At primary, secondary and tertiary education levels, spending per student in New Zealand is below the OECD average. However, the gap is narrowed when related to GDP per capita.  Expenditure on educational institutions per student as a proportion of GDP per capita is 18, 23 and 35 percent for primary, secondary and tertiary education respectively.  These compare with OECD averages of 20, 25 and 40 percent respectively. Across all levels of education from primary to tertiary, New Zealand’s  expenditure per student as a proportion of GDP per capita is 23 percent; 3 percentage points below the OECD average.

2.4 Total public expenditure on education

Public expenditure on education as a percentage of total public expenditure provides a measure of the value placed on education relative to other public areas of investment, such as health care, social security, defence and security. It can also reflect the demographic composition of a country. 

The preceding measures of expenditure adopt a national perspective, but focus on resourcing provided to educational institutions.  Public expenditure covers expenditure by government only, but includes student support payments such as loans, allowances and scholarships.  In the case of student loans, these are measured as the cash outlay rather than the economic or accounting cost to the government. 

On average, OECD countries allocated 13.3 percent of total public expenditure to education in 2006. The share of educational expenditure varied from 10 percent in Germany to 22 percent in Mexico. For the same period¹ , New Zealand’s share of public expenditure devoted to education was 18.9 percent. This places us third in the OECD, behind Mexico and the Slovak Republic.

Figure 4 shows education expenditure as a percentage of total public expenditure for selected countries, including New Zealand, and the OECD average.

Figure 4. Public expenditure on education as a percentage of total public expenditure for selected countries (2006)

Sources: OECD (2009), Education at a Glance, Table B4.1

The proportion of public expenditure devoted to education at the different levels of education also varies widely among OECD countries. In 2006, OECD countries allocated between 6.3 percent (Germany) and 15.1 percent (Mexico) of total public expenditure to primary, secondary and postsecondary non-tertiary education; between 1.6 percent (Italy) and 5.1 percent (New Zealand and Norway) was allocated to tertiary education (OECD, 2009).

In 2006, New Zealand ranked second in the proportion of total public expenditure allocated to primary, secondary and post secondary non-tertiary education, and second (narrowly behind Norway) in the proportion allocated to tertiary education.

New Zealand’s relatively high proportion of public expenditure on education reflects its relatively low level of total public expenditure. Education at a Glance reports that only Slovak Republic, Mexico and Korea have lower levels of public expenditure in relation to GDP. According to the OECD, the countries with relatively low rates of public spending nevertheless place high priority on education.  For example, the shares of public spending allocated to education in Mexico and the Slovak Republic are the highest in OECD, yet their total public spending accounts for a relatively small proportion of GDP. This also applies for New Zealand. 

In 2006 New Zealand’s public expenditure on education as a proportion of GDP was sixth in the OECD at 6.0 percent, compared to the average of 5.3 percent.  Figure 5 illustrates the share of public expenditure as a percentage of GDP for a selection of countries, including New Zealand, and the OECD average.

Figure 5.  Public expenditure on education as a percentage of GDP for selected countries by levels of education (2006)

Source: OECD (2009), Education at a Glance, Table B4.1

2.5 Distribution of government spending on tertiary education in 2006 for selected OECD countries

On average, OECD countries spend 19 percent of their public budgets on tertiary education through subsidies to students and other private entities.  In 2006, subsidies to students accounted for 42 percent of government spending on tertiary education in New Zealand, the highest of all OECD countries.

It should be noted that a proportion of New Zealand’s financial aid to students - tuition fees financed via student loan borrowing - is paid, in practice, directly to institutions, although it is officially classified as a subsidy to students.  Only about 23 percent of public funding is actually paid directly to students.

One way of understanding the split between funding for institutions and student support funding in New Zealand is to compare New Zealand with some of the OECD countries where no tuition fees are charged.  In Denmark, for example (where no tuition fees are charged), 71 percent of public expenditure goes directly to tertiary institutions and 29 percent to students; in Sweden, the split is 74 percent and 26 percent respectively. These ratios are broadly comparable to the 77:23 split that occurs in New Zealand, if we reclassify the fees borrowed via the loan scheme as funding provided to institutions.

Figure 6 shows the distribution of government spending on tertiary education in 2006 for selected OECD countries along with the OECD average.

Figure 6.  Distribution of government spending on tertiary education in 2006 for selected OECD countries
 

Note: Financial aid to students includes the following categories: grants/scholarships; public student loans; family or child allowances contingent on student status; public subsidies in cash or in kind, specifically for housing, transportation, medical expenses, books and supplies, and social, recreational and other purposes; and interest-related subsidies for private loans.

Source: OECD (2009), Education at a Glance, Table B5.4
 

Footnotes

1. New Zealand’s expenditure is measured over the 2006/07 financial year.