4 - Part B: The financial and human resources invested in education

4.1 - Government expenditure on tertiary education

The New Zealand government spends above the OECD average on tertiary education, expressed as a percentage of gross domestic product. New Zealand ranked sixth among OECD countries, with spending at 1.5 percent of gross domestic product in 2005. This compared with the OECD country average of 1.3 percent. As New Zealand has a high rate of participation in post-secondary, non-tertiary education, it is probable that its ranking would improve further if this was taken into account. The OECD country with the highest proportion of gross domestic product spent on tertiary education was Denmark (2.5 percent).

Figure 17 - Government spending on tertiary education in 2005 for selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table B4.1.

Note: Government spending includes direct public expenditure on tertiary institutions plus public subsidies to households (including those for living costs).

4.2 - Total expenditure on tertiary education institutions

The government expenditure provided to fund tertiary education organisations¹ as a percentage of gross domestic product is below the OECD average. In 2005, the New Zealand government spent 0.9 percent of gross domestic product on tertiary education organisations compared with an OECD average of 1.1 percent. However, once student fees are added to government funding of tertiary education providers, the total funding to tertiary education organisations as a proportion of gross domestic product is equal to the OECD average.

Figure 18 - Expenditure on educational institutions in 2005 for selected OECD countries

Source:  OECD (2008) Education at a glance:   2008 OECD indicators, Table B2.4.

This graph, showing tuition subsidies plus fees and including the fees from international students, is the best measure of the revenue of tertiary education institutions. At 1.5 percent of gross domestic product, this is in line with the OECD average. 

This result shows the effect of cost-sharing between government and students – the money spent on tertiary education provision is about the OECD average, but a greater share of that money is attributable to students and their families.  It needs to be noted, however, that much of the student contribution is paid through the Student Loan Scheme and hence, is subsidised by the government.

In New Zealand, 22.4 percent of total expenditure on educational institutions is at the tertiary level, against an OECD mean of 24.2 percent. This excludes money spent on ‘post-secondary, non-tertiary’ education and money spent on student support (OECD 2008, Table B1.2 p220).

4.3 - Expenditure per student in tertiary education

A comparison of annual expenditure per student on tertiary institutions shows that New Zealand ranks 19th out of 27 OECD countries. This puts it below the United States, Australia and the United Kingdom. Annual government and private spending on tertiary institutions was US$10,262 per student in 2005, on a purchasing power parity basis, compared with the OECD average of US$11,512 per student. The purchasing power parity index used, however, is the gross domestic product purchasing power parity index.  This reflects the cost structure of entire economies rather than the education costs faced by tertiary education providers in member countries. So caution should be exercised in viewing these results. In addition, lower annual expenditure does not necessarily lead to lower achievement as the efficiencies of the tertiary education system need to be taken into account.

Figure 19 - Annual expenditure per student in tertiary education institutions in 2005 for selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table B1.1a.

Notes:

1. This figure expresses annual expenditure on tertiary institutions per student in equivalent US dollars converted using purchasing power parities, based on full-time equivalents.
2. Annual expenditure includes government and private spending on tertiary institutions.
   

Expenditure per student, of course, needs to be seen in the light of national wealth. The graph below shows the ratio between expenditure per student and gross domestic product per capita.

Figure 20 - Ratio of expenditure per student in tertiary education institutions in 2005 as a % of gross domestic product per capita, selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table B1.4, p223.

On that measure, New Zealand (ratio of 0.41) is slightly above the OECD mean of 0.40.
 
That is important because there is a reasonable correlation between national wealth and expenditure per student in tertiary education.  By and large, the countries that can afford to spend more do so.  This is illustrated in the graph below.

Figure 21 - Ratio of expenditure per student in tertiary education institutions in 2005 and per capita GDP for selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Chart B1.6, p212.

Note:

The R2 value is 0.65.

4.4 - Funding for students

In 2005, subsidies to students accounted for 42 percent of government spending on tertiary education in New Zealand, the second highest of all OECD countries. OECD countries spend, on average, 18 percent of their public budgets for tertiary education on subsidies to students. This high proportion in New Zealand is intended to maintain the diversity and open access of the New Zealand tertiary education system. Subsidies to students are important, in order to provide students with access to tertiary education, regardless of their financial situation.

It should be noted that a proportion of the financial aid to students goes directly to institutions. In particular, the tuition fees paid through student loan borrowing is in effect a tuition subsidy directed through students.  Adjusting for this effect and treating the money borrowed for fees as part of the funding for institutions, not funding for students, shifts the share of the whole paid to students and their families to around 23 percent of the total.

Figure 22 - Distribution of government spending on tertiary education in 2005 for selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators,Table B5.2.

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.

4.5 - How much do students pay?

Large differences can be observed among OECD countries in the average tuition fees charged by tertiary institutions in 2005. For degree-level programmes, New Zealand tertiary education institutions charged an average annual fee of US$2,671, adjusted for purchasing power parity. There were no tuition fees charged for degree level qualifications by public institutions in eight OECD countries. The United States had the highest fee for degree programmes, US$5,027.

The average fee charged for diploma-level programmes by New Zealand tertiary education institutions was US$2,489. There were no tuition fees charged for tertiary-type B programmes by public institutions in six OECD countries. Australia had the highest fee for tertiary-type B programmes, US$3,734.

Figure 23 - Annual average domestic tuition fees in 2005 for selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table B5.1.

Notes:

1. This figure expresses annual average tuition fees per student in equivalent US dollars converted using purchasing power parities.
2. Amounts of tuition fees should be interpreted with caution as they result from the weighted average of the main tertiary-type A  and tertiary-type-B programmes and do not cover all institutions.
3. Fees are for public institutions only.
   

In New Zealand, private expenditure accounted for 40 percent of total expenditure on tertiary education institutions in 2005. Private expenditure accounts for, on average, 27 percent of total expenditure on tertiary education institutions in OECD countries.

Figure 24 - Proportions of public and private expenditure on education institutions in 2005 for selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table B3.2b.

Note:

Private spending includes all direct expenditure on educational institutions, whether partially covered by public subsidies or not.

Note that expenditure from private sources includes tuition fees paid by international students.  If we look at the balance between the fees paid by domestic students and subsidies paid by government, the student share of the full cost is around 30 percent.  And of that 30 percent, much is paid by way of the compulsory fee entitlement in the Student Loan Scheme and hence, has a government subsidy.  Allowing for that effect, and given that the government expects to pay for 40 cents in each dollar borrowed, the actual share of full cost borne by students reduces to around 21 percent.

Footnotes

1. Note, the expenditure referred to here is the expenditure on tertiary education only, excluding post-secondary non-tertiary education.