Treasury secretary Gabriel Makhlouf has angered the primary teachers' union by suggesting money saved on a small rise in class sizes could be spent on improving the quality of teachers, which was far more important.
He advocated a system that recognised and rewarded "master teachers" with higher pay and dismissed the notion that all teachers were equally effective.
"Class size matters, but the quality of teaching matters more," he said in a speech in Wellington yesterday.
Mr Makhlouf also appeared to go into bat for the controversial national standards, saying: "I find it frankly incomprehensible that data on student achievement is seen as dangerous.
"Yes, data can be misinterpreted and misunderstood. But its value is immense and all organisations need data and information to help them improve."
Mr Makhlouf said education was the single biggest issue that needed tackling to raise New Zealand's living standards. Educational achievement was critical to enabling social mobility and addressing issues of inequality.
And yet in New Zealand, whether your family was wealthy or poor had a greater influence on a child's success at school than in most other developed countries, he said. New Zealand schools had the widest variation of achievement in the OECD.
"The central theme of our advice is that within schools, it is the quality of teaching that ultimately matters most to lifting student achievement."
Mr Makhlouf said it was not Treasury's position that class size did not matter. "But we are in a world where governments, like households, have to make trade-offs ...
"Very modest increases in class size, say on average one or two students per class across the system, would be unlikely to have a significant impact on achievement.
"We think redirecting that expenditure towards strengthening the teaching profession and supporting the better use of data would deliver better bang for our buck in improving student achievement."
New Zealand Educational Institute national secretary Paul Goulter accused Treasury of "trying to call the shots in education" and questioned what expertise Treasury had in trying to shape educational policy.
"While teacher quality is very important, teacher quality alone cannot raise student achievement, as Mr Makhlouf is arguing.
"Treasury would be better to focus on economic solutions to child poverty and inequality. It needs to be looking at how we can ensure children are well fed, well-housed and well-clothed so they are in a position to get the most out of their learning."