Key Points:

Labour's big pledge for a universal student allowance will take $420 million out of the Government purse over the next four years.

But Labour is playing down the cost as it tries to win votes in tough economic times.

Helen Clark said the current parental income test on the allowance would be phased out by January 1, 2012, benefiting 50,000 students aged 18-23.

It will mean virtually all students will get the $153 a week allowance, even if their parents are billionaires.

Helen Clark announced the plan to the applause of 1200 students at Otago University yesterday.

She said the full year-cost of abolishing the test would be $210 million in 2012-13.

A spokesman for Tertiary Education Minister Pete Hodgson later confirmed it would cost $15 million in 2008/09, then $55 million the year after, then $140 million, and finally the $210 million - a total of $420 million.

Helen Clark said Labour could afford the plan, having "prioritised" for it.

"You have to make choices. We've said that moving ahead in the fourth term of a Labour-led Government this is important for us to do for the future of New Zealand."

Helen Clark said she would have liked to have introduced the plan in full immediately, but scaled back because of the difficult economic conditions.

"The economy certainly had an impact on the phase-in of this yes, ideally you'd want to go with it [universal student allowance] in year one of your fourth term, but we can't budget for that."

The costing is much lower than the estimate of $728 million the Ministry of Education made earlier this year.

The spokesman for Mr Hodgson said that was based on making the full change in the first year rather than phasing it in.

Labour introduced interest-free student loans as a big winner before the last election.

National deputy leader Bill English said Labour was "writing cheques it can't cash".

"Helen Clark is being reckless by making these sorts of promises and offering no advice on how it is going to be funded."

NZ First leader Winston Peters welcomed Labour's "borrowing another policy", which was "long overdue".

Victoria University vice-chancellor Pat Walsh said the policy would do nothing to improve the quality of New Zealand's universities and the money would be better spent on improving universities themselves.

Professor Walsh said universities were underfunded by about $230 million a year and squeezed by the cap on fees.

"It's all very well supporting a system that's affordable, but we want it to be of high quality and the underfunding of New Zealand universities is going to lead to a compromise of quality over time."

He said part of the reason for the imbalance was that university bosses and staff had fewer votes than students, meaning their support was seldom courted.

John Woodcock, 19, an Otago University commerce and arts student from Motueka said he was impressed by the policy, even though he would be finished before it was introduced. "It's pragmatic. I like the way she [Helen Clark] has introduced it slowly given the economic crisis, rather than just bringing it in overnight."

How it works:

2009: Parental income threshold rises to $50,318 - 10,000 students benefit

2010: Threshold rises to $70,000 - 20,000 students benefit

2011: Threshold rises to $100,000 - 30,000 students benefit

2012: Threshold abolished - 50,000 students benefit

Source: Labour Party

- additional reporting NZPA