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Larger class sizes will have a "severe impact on the quality of education in primary schools'', the New Zealand Educational Institute says.

Class sizes are set to increase and teachers will come under tougher performance scrutiny in changes announced by the Government this morning.

New Zealand Educational Institute national president Ian Leckie said the policies will not improve education quality.

"The Government has once again not listened to the education sector and instead been getting its education policy advice straight from Treasury,'' Mr Leckie said.

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"It is also ironic that the minister acknowledges that our education system is amongst the best in the world and yet is bringing in a policy to directly undermine it.

"All parents know that young children thrive when they have better one-on-one time with teachers. So how does a reduction in the number of teachers in our schools and the creation of bigger class sizes result in better outcomes?

"It won't happen. Sadly the minister is living in a fantasy world.

"What's most distressing is that this will have the biggest impact on the most vulnerable children - the 20 percent underachieving tail.''

New Zealand Principals' Federation president Paul Drummond said a move to implement performance pay for teachers "misses the point''.

"Performance pay would be counter-productive to quality teaching, because it would destroy our culture of healthy collaboration. It is the wrong incentive,' he said.

"In primary schools team teaching and collaboration are common practice. It would be impossible to try and calculate each teacher's individual input to any particular child's achievements, and why would you?''

Mr Drummond said it was impossible to measure where a teacher's influence started and finished.

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"Who would get the credit for the achievement of the eight-year-old boy who has suddenly switched on to reading? The new entrant teacher who instilled the basic knowledge of books, or the Kapa Haka teacher who instilled a sense of identity and a reason to come to school?''

Secondary teachers union PPTA says the increase in class size equates to a staffing cut.

Vice president Angela Roberts said Ms Parata was going about things the wrong way if her intention was to lift the performance of vulnerable students.

Secondary Principals Council head Allan Vester said he didn't think performance pay was the way to address teacher performance.

"I don't think anyone - parents, teachers or principals are going to be arguing with the the idea of trying to improve teacher quality,'' he said.

But performance pay would be fraught with issues at a secondary school level and schools with less money would be hardest-hit.

Education Minister Hekia Parata outlined the changes at a Trans-Tasman Business Circle meeting in Wellington where she also announced education would get $511.9 million in next week's Budget.

Some $60m would go to boosting teacher recruitment and training over four years.

"We will collaborate in the development of an appraisal system on driving up quality teaching and quality professional leadership.

"Performance pay is but one of a basket of options to reward and recognise that,'' Ms Parata said.

The Government would not invest in more teachers but would direct funding to increase the quality of teaching.

Teachers would now be required to have a minimum postgraduate qualification to train.

A qualification for prospective principals was also announced.

Ms Parata said given the current economic climate, the "trade-off'' in this Budget would see teacher-student ratios increased.

The ratio in Years 2 to 10 would be increased from a range of 1:23-1:29 to a fixed ratio of 1:27.5.

Students sitting NCEA exams in the last three years of secondary school would have fixed ratios of 1:17.3 instead of 1:17 and 1:23. New entrant ratios would remain at 1:15.

She said the changes in student teacher ratios would free up an average $43m each year over the next four years.

The Teachers' Council would also be reviewed, Ms Parata said.

Labour education spokeswoman Nanaia Mahuta said the Government was intent on doing what was right by Treasury, rather than teachers and children.

"The rationale behind smaller classes is cost savings. These cuts are a consequence of skewed priorities and National's failure to properly manage the economy or create growth.''

Green Party education spokeswoman Catherine Delahunty said research for the Treasury, based on the Christchurch Health and Development Study, found that children did better in smaller classes.

Performance pay was introduced in South Australia in March.

Teachers must meet set standards of knowledge, skills and practice to qualify for pay rises, rather than being awarded automatic annual increases.