UPDATED 8.52AM Unions have congratulated Education Minister Hekia Parata on ditching a proposal they criticised as "bulk funding" - but have sounded a warning over work to target funding to "at risk" children.

Parata today announced the next steps of a radical overhaul of school and early childhood funding, including that a radical school funding overhaul will investigate tapping into a powerful Government database to calculate a "risk index" for every student.

LISTEN ABOVE: Education Minister Hekia Parata speaks with Mike Hosking

Other proposals to be outlined by Parata include changes to private school funding, boosting money for small and isolated schools, and putting a per child funding amount at the heart of a future funding system for both schools and early childhood centres.

However, the Government has abandoned a hotly debated proposal to introduce a "global budget", a move labelled a return to bulk funding by the country's two largest education unions.

This morning, NZEI and the PPTA issued a joint statement congratulating Parata for dropping the global budget proposal.

PPTA president Angela Roberts said the removal of the "distraction" of the global budget was good news.

"We can begin the real work of developing an equitable funding model that works for every child," she said.

However, Louise Green sounded a warning over the reform to come, saying any move to target money to "at risk" students as a replacement for the decile system needed to be funded properly.

"We call on the Government to take the next step - to increase school funding and restore funding to early childhood services, which has been frozen for six years."

That was echoed by Green Party education spokeswoman Catherine Delahunty, who said schools desperately needed more money.

"This hyper targeting is going to miss many students who need extra help...this Government has starved public education."

In September, 60,000 members of the two largest education unions held meetings due to concerns over the global budget proposal.

Under the scheme principals would have determined the split between cash for school expenses and credit for salaries, and unspent credit would be paid out.

Currently, the ministry tells schools how many teachers they can employ based on the roll, with salaries paid centrally. Schools can employ more teachers but need to use locally raised funds.

Unions argued principals and boards would be forced to make trade-offs between paying for experienced teachers and other resources.

Parata said feedback from the sector, including an 18-member advisory group, "indicated that the sector is not ready for the level of flexibility and accountability" in a global budget.

Big changes on the way

Other proposals outlined by Parata today include:

• Giving extra money to small and isolated schools to ensure they survive as rolls drop.

• Changing how private schools are funded by giving them a per-child subsidy, a move that would likely provide more public money.

• Only paying schools maintenance money if they prove they have carried out basic jobs such as clearing gutters and painting buildings. Parata said that came after some schools hadn't used maintenance money appropriately.

Sector groups will now work with the Ministry of Education to develop the proposal.

Any new system will be in place by 2020, aiming to make radical enough changes to address the weaknesses in New Zealand's education system, particularly the gap between the top and bottom students, one of the worst in the OECD.

Parata said the current funding system was "riddled with complexities".

She proposes the creation of a per-child funding amount that will simplify and make up the core of school and early childhood funding.

It would aim to provide enough money to support each student to make at least a year's worth of progress across the curricula each year.

That will be topped-up by special education funding, due to be overhauled, and extra money designed to support schools with more disadvantaged students.

The latter is currently allocated through the decile system which is based on the area from which a school draws its students.

As a replacement, officials had considered using four "social investment" indicators to judge a child's risk of under-achievement and target money accordingly.

That work has gone much further with the development of the statistical "risk index" to assess children's circumstances in a "fine-grained way", Parata said.

A law change could be required to allow access to the Statistics NZ database that holds information from a wide range of Government departments and agencies.

Parata said it had not been decided what factors would be included if the proposal went ahead.

If the risk index did progress, one possibility outlined in a Cabinet paper for allocating money was to tag funding to the 25 per cent of students who, as measured by the index, were most at risk of failing.

Schools would be told the level of funding and how many students generated it, but not which children were identified as disadvantaged.

More spending not the answer - Parata

Parata also wants to "strengthen the line of sight" between spending and how well children are doing, but has ruled out funding penalties if results aren't achieved, or bonuses if they are.

However, the bid to peg the core part of school funding to cover a year's worth of progress through the curriculum for each student would be a link between investment and results.

The paper presented to Cabinet by Parata states that New Zealand's performance compared to overseas countries "suggests there is enough money in the system".

"International research shows that once a certain level of funding is reached within an education system, extra improvements in student outcomes cannot be achieved simply by adding more resources into the system. Instead, it matters how effectively this money is spent," the paper states.

Parata told the Herald that the Government boosted education funding each year, but it was increasingly important to measure the effect of extra spending.

"That's why the core part of this - which is the most complex and will take the longest - is what does it actually cost to make sure that every kid, every year is getting a full year's worth of learning. Because that hasn't traditionally or consistently occurred.

"As every minister is getting better at using data, we have got one of the poorest lines of sight between what we invest in education and the predictable outcomes for kids. So when I go in and argue against health, for instance, and they say, for this dollar amount we can do X hip operations...it's no longer acceptable to just say, 'we need more in education.'"

- NZ Herald