Almost $200 million of the Government's tertiary fees-free funding is set to be spent elsewhere due to enrolment numbers not hitting estimates.
In his pre-Budget speech today, Finance Minister Grant Robertson said $1 billion had been identified as "no longer a priority or where the funding allocated is no longer needed".
"One example of this was underspending on the fees free programme due to enrolments not meeting initial forecasts.
"This funding, some $197 million, is now to be redirected to the implementation of the Reform of Vocational Education, which Education Minister Chris Hipkins is working through."
Mr Robertson said apprenticeships, trades and workplace training needed to be valued.
"We need it to be higher quality, more accessible, more coordinated, and more relevant to businesses and regions... The reprioritisation of funding that I have announced today is an initial indication of our commitment to making this work."
"Without fail, the first issue that businesses raise with me is the need for more skilled staff. For New Zealand to become a more productive nation it is vital for us to get this right."
National have already come out swinging at the funding change, with tertiary education spokesperson Shane Reti calling the fees-free policy "a failure from the very start".
"The Government has poorly allocated money in education and now it is in a situation where teachers are engaging in the largest ever industrial action in New Zealand, and one of its key policies has fallen over.
"This is another case of Labour over promising and raising expectations in Opposition and now under delivering," Dr Reti said.