The Treasury has told the Government to increase class sizes and close schools so it can spend more money on improving teacher quality.
In its briefing to the incoming Minister of Finance, the Treasury says teacher quality is the largest influence on student achievement.
It says increasing student-teacher ratios and consolidating the network of state schools can free money that could be used to enhance the quality of teaching.
The briefing says education and welfare present not only the greatest opportunity for reforms to improve economic performance and social outcomes, but also to deliver savings.
It also calls for the reintroduction of interest on student loans and aiming early childhood funding at the poorest families.
Departments must tighten belts, says English
Finance Minister Bill English is not ruling out an increase in class sizes, saying all Government departments are tasked with finding ways to save money, and staff costs are one of them.
Mr English says there is clear evidence that class size does not significantly affect the quality of students' education.
The Labour Party says the indication on class sizes will concern parents around the country.
Education spokesperson, Nanaia Mahuta, says parents will be worried about the effect bigger classes will have on their children, espcially those who have seen the benefits of smaller classes and the ability of teachers to focus on the learning needs of their children.
The Green Party says the Government is taking a very negative approach to education.
Green MP and education spokesperson, Catherine Delahunty, says it is alarming the Government's approach is from an economic perspective, rather than an educational one.
Teacher unions and principals groups say larger classes are harder to teach and parents want their children to be in small classes.
But an education professor who has made a close study of the things that improve student achievement, Professor John Hattie, says class size has only a small positive effect.
He says it might be worth trading off a small increase in class size for increased teacher pay or more training.