A massive shake-up of polytechnics and industry training may cost up to $400 million in setup and transition costs - twice as much as the Government has earmarked so far.

A Cabinet paper released today after Education Minister Chris Hipkins confirmed the key changes also reveals that student numbers in the country's 16 existing polytechnics have dropped this year by a further 6 per cent, or 2000 equivalent full-time students.

Plunging rolls will require further bailouts totalling up to $40m for two struggling small polytechs, Tai Poutini on the West Coast and Whitireia in Porirua.

Hipkins confirmed that all existing polytechs will be merged into one national institute over the next three years in a bid to stem future losses.


Industry training and apprenticeships will also be transferred to the new institute, along with Wānanga and private training establishments.

The existing 11 industry training organisations will be abolished and replaced by between four and seven "workforce development councils", which will determine industry training needs but will not actually recruit or support trainees and employers.

Finance Minister Grant Robertson earmarked $197m over the next four years to support the reform in this year's Budget - money that was diverted from funding fees-free first-year tertiary education because enrolments have fallen far short of forecasts.

But the Cabinet paper released today says the actual costs "will likely be significantly higher than the amount set aside at Budget 2019".

"The Programme Business Case for the Reform of Vocational Education includes a range
for the total estimated implementation and transition cost for the reform of $285m to $395m (excluding inflation)," the paper says.

"The bulk of this cost relates to the establishment of, and transition to, the institute.

"The establishment of the Institute requires investments to launch it with sufficient
capability to design and build an operating model to be the centrepiece of a national
network that delivers the education and training our learners, employers and regions
need to thrive.

"The costs involved in establishing the institute are significant, but so are the risks of
inaction. Since the start of 2018, we have needed to provide almost $100m in
Crown support to ensure the viability of three [polytechnics].


"Without transformation of the ITP [institutes of technology and polytechnics] system, it is inevitable that further funding will be needed, for those same ITPs, and most likely many more."

The paper identifies costs of between $56m and $67m over the next five years for "establishment of the institute".

It appears that even higher costs are expected for "integrating and upgrading the diverse IT systems" of the existing polytechnics, but those costs are blacked out in the published paper.

The Ministry of Education and Tertiary Education Commission are expected to need between $47m and $55m over the next six years to implement the changes.

But the costs of setting up the workforce development councils, regional leadership groups and centres of vocational excellence are blacked out.

The paper reveals that polytechnic enrolments in April were 6 per cent down on the same time last year, a drop of 2000 equivalent fulltime students (EFTs). University enrolments were up 0.7 per cent, or 770 EFTs.


It warns that the reform itself may scare some industry trainees and employers off during the transition.

"It is also likely that there will be a short-to-medium term further softening of demand as learners and employers defer engaging in vocational educational until the reforms are
embedded," Hipkins says in the paper.

"I intend to mitigate this risk by prioritising the needs of learners and employers during transition and implementation and focusing on setting up new capability in critical industries first.

"A softening of demand will likely result in additional underspends that could further offset the costs of the necessary reforms."