Industry training organisations say skilled labour shortages are looming again after Budget cuts in industry training stretching out beyond 2013.

Last week's Budget unexpectedly cut industry training funding from $180 million in last year's Budget to $156 million in the year starting on July 1 and $139 million a year from 2013.

The Tertiary Education Commission said the current level of funding was "not required to meet demand for substantive, high-quality industry training".

But Industry Training Federation head Kevin Bryant said the money would not be enough to train the skilled labour required to rebuild Christchurch, repair leaky homes and cope with the economic upturn expected by 2013.

"There are simply not enough tradespeople in work in the country to be taken out of what they are doing right now [for Christchurch]," he said.

"So there is a crisis right around the corner that is probably going to end up costing the Government a heck of a lot more through other mechanisms to fill those holes than if it accepted some of the less-than-perfect scenarios that exist in the vocational training system."

The training cut was matched by others in the Ministry of Social Development.

These included an $11 million reduction in wage subsidy schemes such as Job Ops and a $1.2 million drop for on the limited service volunteers scheme, despite a pre-Budget fanfare about those schemes.

Industry training has already been buffeted by the recession, which threw many trainees out of work.

Trainee numbers fell from 133,303 at the end of 2008 to 115,600 last June. The number of modern apprentices declined less, from 12,149 to 11,980.

The building industry has been hardest hit. . Building and Construction Industry Training Organisation chief executive Ruma Karaitiana said his trainee numbers almost halved from 9800 at the end of 2008 to 5500, with an even steeper plunge in Auckland.

"Auckland has behaved differently to the other markets because there is much more labour-only contracting, so the workforce has more flex in it than other places and less loyalty," he said.

"Our experience is that the further south you go, when the recession hit, the more you had employers contemplating how to change hours of work and other things to hold on to their apprentices."

At the same time the Tertiary Education Commission has dramatically tightened control over its spending, taking back $4.3 million last week from 18 of the 38 industry training organisations for "trainees" who were found to have left, never engaged in training or, in 11 cases, died.

Tertiary Education Minister Steven Joyce said 44 per cent of "trainees" funded in 2008-09 did not earn a single credit.

"It's obviously been incredibly loose," he said. "The TEC, as I said to them, has to take some blame for that, but so too do the ITOs."

The combination of tighter controls and the recession freed $55 million out of last year's training budget, which was transferred to universities last August.

The TEC said this, and the planned further cuts, were "unlikely to result in reductions of trainees that are actively undertaking substantive qualifications" because the previous figures were not credible.

But Mr Karaitiana said a huge increase in trainees would be needed to cope with rebuilding Christchurch, economic recovery and the release of leaky-homes repair funding expected next year.