Dr Michael Johnston: Let’s trade the fees-free tertiary funding for something that works

The worst-kept secret of this afternoon’s budget is that the entitlement to a fees-free year of tertiary study will be scrapped. On 8 May, New Zealand First leader Winston Peters ‘leaked’ the policy change on Newstalk ZB. Finance Minister Nicola Willis subsequently confirmed Peters’ claim.

The fees-free policy was implemented in 2018. Incoming Prime Minister Jacinda Ardern had announced to prospective tertiary students, “your first year is on me.” It wasn’t, of course. It was on New Zealand taxpayers, and it has cost them approximately $350 million per year ever since.

The intention of the policy was to increase university participation for socioeconomically disadvantaged young people. It didn’t work. As Herald reporter Derek Cheng pointed out in 2023, the proportion of university students from the lowest decile schools actually fell under the policy.

Just before the scheme was introduced, around 6% of first-year university students came from decile 1 schools. After four years of the policy, that figure had fallen to about 3%. Of course, the fall cannot be attributed to the policy itself – the pandemic was more likely to blame. Nonetheless, the scheme has been a failure by any measure. It has amounted to little more than middle-class welfare.

In fact, the policy intention was doomed from the start. The main obstacle to university enrolment for disadvantaged young people is that too many of them do not attain the entrance requirement. NZQA data show that, in 2025, just 30% of Year 13 students facing ‘more socioeconomic barriers’ attained University Entrance, compared with 73% of those facing ‘fewer barriers.’

Under Labour’s original version of the policy, students were entitled to up to $12,000 to cover their first year of tertiary study. When the Luxon government came to power, it was already clear that ‘fees-free’ was a colossal waste of money. But instead of scrapping it, the incoming government shifted it to the final year of study. Now they are finally putting the failed policy out of its misery. Better late than never.

Reaction to Peters’ budget preview has been relatively muted, although there has been some criticism, mostly from interested parties. University students’ groups were understandably upset. For those who have already commenced university expecting their final year for free, Peters’ announcement would have come as a rude shock. Former Labour Finance Minister Grant Robertson, now Otago University Vice Chancellor, said the cancellation would be ‘very disruptive’ to students.

Green Party co-leader Marama Davidson called the decision ‘outrageous,’ saying her party would fight to have the scheme reinstated. Again, this is understandable. The Greens draw disproportionate support from university students.

Labour’s tertiary education spokesperson Shanan Halbert was also critical but did not go so far as to commit Labour to reinstating the scheme. Instead, he said, “We need to see what [the government’s] plans for the fees-free money are in more detail before we can make any commitments ourselves.”

That was a wise move on Halbert’s part. When Winston Peters foreshadowed the budget move, he also signalled that the savings would not simply be used to help the government’s ailing fiscal position. Instead, he implied that the money would be reinvested in education, saying the government would “reshape and repurpose it for the trades and all sorts of industries where we do need it.”

If that turns out to be true, there is a good chance it will be a sound investment. In Trade Routes, a 2025 report for The New Zealand Initiative, I show that the status and quality of New Zealand’s industry training system is poor. More of our school leavers become unemployed than undertake apprenticeships. In contrast, half of German school leavers become apprentices.

The non-university tertiary sector is still reeling from the Te Pūkenga misadventure. Established in 2020, the mega polytechnic quickly got into financial difficulty and was disestablished again at the beginning of this year. Some of its successor organisations remain cash strapped. Investing some of the savings from the fees-free scheme in those institutions could go a long way towards making them viable.

Some of the fees-free funding should also be invested in the new industry-led subject initiative for secondary schools. Industry-led subjects will form part of the new school qualification system scheduled to replace NCEA in 2029 for Year 12, and 2030 for Year 13.

For the first time, secondary schools will have formal curricula for trades-track education. That could be a game changer for an industry training system that has long been seen as a second-rate alternative to university. But most schools are not currently geared to offer industry and trades education at scale.

If schools received top-up funding for each enrolment in an industry-led subject, that could change. They could use the additional money to hire new teachers, to pay for their students to undertake tertiary courses, and to establish work-integrated learning opportunities.

Arguably, too many of New Zealand’s school leavers go to university already. Undeniably, far too few undertake apprenticeships and other trades and industry training.

If the money saved from the fees free scheme is reinvested to improve the quality and status of trades and industry training, the country will be richer for it in the long run.

Dr Michael Johnston has held academic positions at Victoria University of Wellington for the past ten years. He holds a PhD in Cognitive Psychology from the University of Melbourne. This article was published HERE