Auckland University and the Government appear headed for a showdown over what courses the university is offering - and what the country needs.
Tertiary Education Minister Steven Joyce is threatening to force the university to take more engineering students, even though the university says this could cause layoffs elsewhere on the campus.
This year's Budget put an extra $42 million into engineering and $17 million into science at universities and polytechnics - while freezing funding for all other subjects - in a bid to ease skill shortages in fields such as engineering and computing.
But Auckland University vice-chancellor Stuart McCutcheon said the increase was paid as a bulk fund, and the university did not have to put it all into engineering and science.
"If we followed that, we would have increased the budgets of those faculties and made large numbers of people in the arts, creative arts, the business school and the law school redundant," he said.
"The other thing to remember is that the programmes people want to increase are generally the most expensive programmes, so to have more engineering students you may have to reduce the number of arts students by twice as many.
"It's not driven only by the needs of industry. It [the Government] wants higher participation rates for Maori and Pacific students, but Maori and Pacific students typically go into arts and education rather than engineering, so if you shift the balance you have impacts on your equity objectives. All that makes it quite a complex picture."
Mr Joyce said that if necessary, he would step in to force change at Auckland University.
"If they want us to be more directive, I'm more than willing," he said. "I'm watching them really closely to make sure they do respond to what the market wants, and if they don't, I can go and tell them how many they should enrol for each department."
Mr Joyce said the Budget changes brought New Zealand's funding system closer to that of Australia, which encouraged students into areas of skill shortage, as well as reflecting students' likely future earnings.
Subject areas in New Zealand have been funded on the basis of course costs, and Mr Joyce said even then they gave universities an incentive to enrol students in cheaper subjects.
"If you look, for example, at the level of tuition subsidy that New Zealand applies to engineering and science relative to say the humanities and commerce, which are much lower costs - they don't need labs and all those sorts of expensive things - then if you were a rational decision-making institution you'd put more into the arts and commerce because you can make effectively more money out of those areas," he said.
"The other thing that we are very generous to in our subsidies is medical. If you match us against Australia we generously fund the lower-cost courses in humanities and commerce and medicine, and we tend not to fund as well science and engineering.
"So over the years we have ended up with exactly what you'd expect, which is very high demand in medicine and humanities and commerce and lower demand in engineering and science, and that's partly as a result of those funding issues. So we have looked to redress that."
Only 5570 (4.3 per cent) of New Zealand students studying for bachelors' degrees last year were in engineering, compared with 67,300 in "society and culture" fields such as languages, law and social sciences.
Engineers NZ says engineers made up 5 per cent of all tertiary graduates in New Zealand in 2007, compared with 7 per cent in Australia and an average in OECD developed nations of 12 per cent.
A New Zealand Herald series, starting today, has found a serious mismatch between the skills required for the 15,000 jobs advertised on the Seek NZ website and the skills of the almost 300,000 unemployed.
Information technology consultants and engineering managers were the two occupations in most demand in Seek's survey released last week.
But few of the jobless had experience in these areas, and 24 per cent had held no job in the previous six years or were seeking their first job.