In some countries, higher education policy just seems to sit still for decades. In others, hyperactivity is a more normal state. Today we’re looking at the 2020s poster child for higher education hyperactivity. It’s not the usual suspects, the UK or Australia, it’s little New Zealand where we’re making our fourth stop on this podcast in just over two and a half years.
When last we were in Wellington, we talked to Chris Whelan from Universities New Zealand about university underfunding the consequences of losing international students, and something called the University Advisory Group, which was supposed to set the national system on a new course along with a research advisory group who weirdly was made up of exactly the same people only following a different mandate.
Since then, while these groups were noodling on how best to steer the system, the government made two big table flipping moves. One musing about creating a new type of institution, which was neither a university nor a college, and nobody knew what they were talking about, and the other simply deciding it wasn’t going to fund any more research in the social sciences and humanities through its research granting system. Fun times.
Anyways, with all this excitement, we figured it was worth going back to the Tasman Sea to check in with one of our regular correspondents, Roger Smyth. He’s a former senior New Zealand public servant and now a consultant based in Canterbury. He’s got all the skinny for us. And so, over to Roger.
The World of Higher Education Podcast
Episode 3.32 | Incremental Change or System Overhaul? An Update on Higher Ed Reform in NZ with Roger Smyth
Transcript
Alex Usher (AU): Roger, the last time we did a show about New Zealand, we had Chris Whelan from Universities New Zealand on, and we talked a lot about the University Advisory Group process. How far along is that work, and what are people in the sector saying about it? What’s the view at this stage? Is there still interest and momentum behind the process, or has it stalled out a little?
Roger Smyth (RS): Okay, so the advisory group submitted an interim report late last year, and it’s scheduled to submit its final report this month. I understand that the report has now been submitted, but nothing has been published yet. Neither the interim report nor the final report, nor any of the dozens of submissions made in response to the UAG’s questions, have been released publicly.
In these sorts of cases, the report usually isn’t published until the government has had a chance to make its initial decisions on some of the high-level questions—and that could still be a little way off.
Of course, as you implied, Alex, there are rumors. And in some of the face-to-face consultations, the UAG has given a bit of a steer as to where it was heading. For instance, it’s pretty clear that in their interim report, they were proposing a machinery of government change—a reorganization of some of the government agencies in higher education, such as the Tertiary Education Commission, the Ministry of Education, and the policy unit responsible for research and innovation. But we won’t know that for sure until the report comes out.
One of the big challenges the advisory group would have faced is that the government is committed to returning to a financial surplus in the 2027–28 fiscal year. That’s a significant challenge, with major demands on the budget. So the advisory group would have been instructed to make their proposals fiscally neutral, and that’s a big constraint on what they could recommend.
My main view on this whole process is that it was never really clear what problem the University Advisory Group was set up to solve—apart from a general instruction to look for improvement and to make the system work better. One of the most distinctive features of the New Zealand system is its homogeneity. That has a lot of positives—it means that wherever you go, you’re guaranteed a reasonable level of quality. But it also has the downside that there isn’t really any outstanding, world-leading university.
AU: Let me stop you there, because alongside the University Advisory Group, there’s also been a commission on research—on research and science—a review going on at the same time. Why did that happen in parallel rather than together?
RS: Yeah, I think that’s an important point. The first thing is that the two advisory groups were actually chaired by the same person—Peter Gluckman, a distinguished medical scientist and academic—and they began operating at roughly the same time.
You can see there was a desire to think about knowledge transfer opportunities within universities and how they contribute to the broader economy and the wider science system.
The Science Advisory Group has now completed its report. It’s been submitted, and the government has published its initial decisions. This is an area where the review proposed a very substantial overhaul of the machinery of government. They proposed creating a super ministry for higher education, science, technology, and innovation.
The government, however, did not accept that proposal. Most governments are a bit wary of major machinery-of-government reshuffles unless there’s a very strong rationale. These kinds of changes often involve a settling-in period where the system can lose its way, as people jockey for position and the focus shifts away from the core goals the system is meant to achieve.
Instead, the review also proposed merging the seven non-university research institutes into a single public research organization. The government opted for a partial reorganization, establishing three public research organizations—focused on the bioeconomy, earth sciences, and health and forensic science. They’re also creating a new organization to cover advanced technology fields like AI, synthetic biology, aerospace, and quantum tech. So that’s probably a reasonable foundation for advancing the science system.
AU: But of course, before they even got to that point—before the advisory group had reported—the government unilaterally made a change to what’s called the Marsden Fund. That’s sort of like our combination of the social sciences, humanities, and natural science councils. And it effectively nuked the humanities and social sciences, as I understand it. They basically said, “We’re not going to fund those anymore.” Why did the government do that? Why undercut your own report before it even comes out?
RS: Yeah, this was definitely a decision that caused a lot of pushback and consternation—real ill feeling in universities and across the broader community.
Most of the government’s research funding is directed toward major national strategic priorities, so it tends to go to areas like health, the hard sciences, engineering, agriculture—things like that. The Marsden Fund was one of the few avenues where humanities researchers could secure external funding, outside of what universities provide internally.
I think part of this decision reflects the government’s desire to place greater focus on the hard sciences. If you look at the Marsden Fund trends, the social sciences and humanities panel had been gaining a slightly larger share of the funding in recent years, which naturally came at the expense of the hard sciences. So in some sense, this was a declaration that the government wants to reorient support toward areas seen as having greater economic impact.
That said, the main driver was probably to send a message. But in doing so, it sent a very negative signal to the humanities community. Even researchers in the now-favored areas were concerned about the loss of this funding stream—particularly given that social science research can produce huge social value.
AU: This tension between favored STEM subjects and less-favored fields like the social sciences, humanities, and business is also playing out in discussions around the government’s funding model. My understanding is that in New Zealand, the funding model essentially funds places. So, the government allocates a certain number of places to each institution. Now we’re projecting that there will be more enrollments than there are funded places, and the government would like to provide a bit of additional funding for STEM subjects, but not for others. We’re very familiar with this in Canada—it’s exactly what’s happening in Ontario right now. I’m curious how you think that will play out in New Zealand?
RS: Okay, well, just to give a bit of context on the financial situation of the universities: like most Anglophone countries with a heavy reliance on the international student market, COVID hit New Zealand universities hard. In 2021, the impact was cushioned by a surge in domestic enrollments. The labor market was weak due to the pandemic, so more people turned to study, and universities did okay financially.
But in 2022, following government stimulus measures, the labor market recovered and became more robust. Domestic enrollments fell sharply, and the international student market still hadn’t bounced back. That made 2022 the worst financial year ever for the universities. Six of the eight were in deficit, and one was just breaking even.
In 2023, when finances were still tight, there was a lot of concern about university viability. The government stepped in with a short-term funding rate boost—not an increase in the number of places, but an increase in the dollars per place.
Then there was a small increase in funding again last year. But the broader funding review never happened. The government changed, and that process was superseded by the UAG process we discussed earlier.
And that process, as we said, is likely to avoid anything that would seriously impact the government’s bottom line. So, the universities have been in a tough situation.
But now, the international market is starting to recover. It’s been slower than in the other countries we compete with, but in EFTS terms—equivalent full-time students—2024 saw an 11% increase in international enrollments. It’s still below pre-pandemic levels, but the trend is positive. And that matters because each international student generates about 60% more revenue than a domestic student.
Right now, we’re in the middle of the financial reporting season. Five of the universities have reported for 2024. One reported a small deficit on its core business, but it was much lower than expected and offset by a surplus on its wider trading operations.
So, it’s still tough—marginal—but not as gloomy as it was a couple of years ago.
Even though there’s still pressure, and enrollments may be shifting toward more expensive fields, financially speaking, the worst appears to be over. The system is beginning to grow again.
And on the point about STEM versus other fields—it’s worth remembering this is a system driven by student choice. The government doesn’t have much influence over where students choose to go. So, no matter how the government might want to steer things, it can’t really control those choices under the current policy environment. So, I’d say that the universities are managing through this.
AU: Roger, I want to get into something I read recently—there was a fascinating article where the government, or at least the minister, was musing about the idea of creating a new type of tertiary institution. Something that’s not quite a university and not quite a polytechnic.But before I ask you about that, I think we need to give our listeners a bit of background on polytechnics in New Zealand.
Your system merged all the polytechnics into one big national institution just before COVID, right? That was Te Pūkenga. Why do that? What was the point of one national institution? It’s a big country—two islands, 15 campuses. That’s a lot to bring together. What was the thinking behind that?
RS: These reforms had two separate sources.
First, we talked earlier about the financial challenges in the university sector, but the polytechnics were facing a real financial crisis. They’d been growing for years and carried high fixed costs, with relatively small student numbers spread across multiple campuses.
Between 2012 and 2019, domestic enrollments dropped by about 25%. By 2019, nearly all the polytechnics were running deficits, and the sector’s collective deficit was quite substantial. So something clearly had to be done.
Second, the government looked at what had been done in Australia. In New South Wales, for example, they merged all the TAFE institutions into a single statewide TAFE. It worked reasonably well there, and in Queensland as well.
So they decided to follow a similar path and merge all 16 institutions—along with all work-based training—into a single national organization. That was the rationale behind the creation of Te Pūkenga.
AU: What about the un-merger? So, a few years later you get a new government—the National government—and they’re going to undo the whole thing. Was that because it was, as you said, a machinery-of-government issue? Or was it more about a shift in how the government views vocational education?
RS: I think it was both.
Let’s look at both sides. First, the merger didn’t go well. There were some good aspects to the reforms. For instance, they set up six Workforce Development Councils to set standards for training and take a forward-looking view of labor market needs in specific fields. That was a positive.
The idea of reintegrating polytechnic and work-based training into one coherent trades training system was also a good one. But the merger was very poorly executed.
Costs blew out, and after three years they still hadn’t settled on a functioning operating model. There was almost no progress on the actual integration of work-based and polytechnic-based training. The initial chief executive didn’t work out and had to go.
So that was one rationale for reconsidering—or unpicking—the merger.
But the second reason was political. The incoming minister in 2023 had previously been a very successful chief executive of one of the polytechnics that was merged into the national institution.
She was deeply committed to undoing the merger and restoring control to regions and local communities. So, the government came in with a clear policy to do this, and she got the ministry, and things got moving quickly.
But, of course, life’s not that simple. No one wanted to go back to a system everyone agreed had serious problems. So how do you reconcile those two positions?
After two years of back and forth, we’re now getting close to the new model. Those six Workforce Development Councils—the best part of the previous reform—are being disbanded and replaced with smaller organizations focused mainly on setting standards.
The polytechnics, which remained as divisions within the larger organization, have all gone through what are called ruthless efficiency reviews to determine what could be dropped or changed to make them financially viable.
We haven’t seen the full results of those yet, but some institutions will likely be deemed viable and split off as standalone, autonomous polytechnics. These will focus partly on trade training, but also on foundation education and some degree-level programs. Those will become autonomous institutions.
But for those polytechnics that aren’t viable in the long term, they’ll be required to join a federation anchored by the Open Polytechnic, which delivers programs online. The idea is that those institutions can draw on the federation’s expertise and infrastructure to complement their face-to-face delivery with online components.
AU: So I don’t want to ask you what’s going to happen, but I do want to ask when it’s going to happen—because there are a whole bunch of moving parts here, and you’ve got an election coming up. Is there enough time for the government to unwind all of this before the next election? Because I know, for example, with the Universities Accord process in Australia, the report came out well before the election, and even then, they couldn’t get everything done before voting day. So, what’s the pace of decision-making here?
RS: The first thing is that if we look at the University Advisory Group, we should see the results of that fairly soon. I’d expect it within a couple of months—possibly even sooner. It might come out all at once, or it could follow the science review model, where there were high-level interim decisions released first.
My sense of the brief given to the UAG is that we’re not going to see truly transformational change—nothing on the scale of the three big reviews we’ve had in the past: 1961, 1989–90, and 2002–03.
So I’d expect incremental change rather than sweeping reform. And because of that, I think the university review will largely settle before the election.
In contrast, the un-merging of Te Pūkenga and the broader vocational education reforms will take longer.
Under the new arrangements, there will be greater integration between workplace and institutional training. Polytechnics and private providers will be allowed to act as arrangers and supervisors of work-based training.
But implementing that integration will take time. There’s a two-year transition period, starting in 2026—which is the election year. So the un-merging process will only be partly complete when voters go to the polls.
That said, I think this process will continue to play out slowly over time. Hopefully, it results in something positive.
Despite everything—despite what will have been six years of turbulence and ongoing uncertainty—I do believe the sector will move forward with reasonable operating models.
AU: May you live in interesting times. Roger, thanks so much for joining us today.
RS: Thank you very much, Alex.
AU: And that just leaves me to thank our excellent producers, Tiffany MacLennan and Sam Pufek—and you, our listeners, viewers, and readers—for joining us. If you have any questions or comments about today’s episode, or suggestions for future ones, don’t hesitate to get in touch with us at podcast@higheredstrategy.com. Run—don’t walk—to our YouTube page and subscribe. That way, you’ll never miss an episode of The World of Higher Education.
Join us next week when our guest will be David Lloyd. He’s the remarkable individual who serves as both the Vice Chancellor of the University of South Australia and the co–Vice Chancellor of the University of Adelaide. How does he manage it? Those two institutions are on the brink of what’s likely the biggest institutional shakeup in Australian higher education since the Dawkins reforms of 1988. He’ll be here to talk about the merger, how it came about, and what the future looks like. Until then—bye for now.
*This podcast transcript was generated using an AI transcription service with limited editing. Please forgive any errors made through this service. Please note, the views and opinions expressed in each episode are those of the individual contributors, and do not necessarily reflect those of the podcast host and team, or our sponsors.
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