Some schools and childcare centres will be winners and others will be losers in a radical funding reshuffle in the next three years.
Education Minister Chris Hipkins has announced Cabinet approval "in principle" to abolish the decile-based school funding system by 2021 or 2022.
It will be replaced by a new "equity index" which will give schools and early childhood services more money based on 26 measures of the family backgrounds of each child in the school.
The change will be the biggest shift in the education funding system since deciles were introduced in 1995, and Hipkins' paper for Cabinet concedes that it "is likely to be disruptive for many schools and services".
"There will be distributional impacts, with some schools and services becoming better off and others worse off," the paper says. "This is due to the blunt and imprecise nature of decile."
• School deciles to be scrapped from 2021-22
Hipkins plans to soften the impact of the funding reshuffle by increasing the total funding - possibly doubling the $150 million currently allocated through the decile system.
"Currently, 2.9 percent of resourcing for schools, or around $150 million, is targeted for equity," he said.
"However, it is clear to the Government that current equity resourcing is not enough for schools to reduce the impacts of socio-economic disadvantage for many of our students."
The Cabinet paper says England, Northern Ireland, the Netherlands and the Australian state of Victoria all allocate 6 to 7 per cent of school funding on the basis of students' family disadvantages.
It says lifting equity funding to 6 per cent of school funding in New Zealand would cost $340m - or $190m a year more than the current spend.
But the Cabinet has not yet approved any more money and Hipkins says in the Cabinet paper that he will seek funding in next year's Budget or later Budgets.
The current decile system funds schools on the basis of the socio-economic status of the areas their students live in. This means that a needy family living in a wealthy area may not generate any extra funding for the school its children attend.
The new index is still being developed, but the Cabinet paper says the current version would allocate funding to a school based on 26 measures of the family background of each child in the school.
The 26 measures are:
• Four measures of whether the child has ever been notified to, investigated by or placed in the care of the child protection service Oranga Tamariki.
• Three measures of whether the child's parents have been convicted of criminal charges or sentenced to jail or community service since five years before the child was born.
• The parents' education levels.
• Two measures of the parents' age when the child was born and when the mother's first child was born.
• How many other children the mother had before the child was born.
• Five measures of how often the child has changed houses and schools.
• Two measures of whether the child was born overseas and how long they lived overseas.
• Three measures of how long the child's parents have been on benefits and their income from benefits.
• Two measures of the parents' incomes during the child's lifetime.
•Three measures of whether the child itself has been involved in the youth justice system.
All measures will be taken from Statistics NZ's anonymised integrated data infrastructure and will be used to produce an index number for each school. The school will not be told the details about any individual students.
A spokesman for Hipkins said the measures would be weighted in line with the effect that each item had on average on each student's performance in levels 1 and 2 of the National Certificate of Educational Achievement (NCEA).
The data for each school will be updated annually so that their ratings don't become permanent fixtures like the census-based decile ratings.
Ratings will not be divided into 10 levels like deciles. The Cabinet paper suggests that they might be "on a scale with a median of 400 and a standard deviation of 50" - making them much harder than deciles for the public to make sense of.
Principals' Federation president Whetu Cormick said principals hoped the new system would predict the needs of each child more accurately than the decile system.
But National education spokeswoman Nikki Kaye said Hipkins had taken two years to gain Cabinet approval for a system that National proposed in 2016, and he had still not won Cabinet approval for the necessary extra funding.
School funding revamp Q&A
Q. What is the current decile system?
A. The current system gives about 3 per cent of school funding to schools based on the socio-economic status of the areas where their students live.
Q. Why is it being changed?
A. Two reasons. First, many families see a school's socio-economic decile as a signal of its quality, so low-decile schools have lost students to higher-decile schools. Second, the system doesn't take account of the actual students at each school, only the areas they live in.
Q. How will the new system work?
A. The new "equity index" will allocate a bigger share of school funding (perhaps 6 per cent) based on 26 measures of the family backgrounds of the children actually attending each school. Funding will be finely graduated, not divided into 10 deciles.