A new national body will take over all of New Zealand's 110,000 polytechnic students and 140,000 apprentices and industry trainees in a massive shakeup proposed today.

The proposed NZ Institute of Skills and Technology will take over programme design and administration for all campuses of what are now 16 separate polytechnics.

It will also take over enrolling and managing apprentices and industry trainees from what are now 11 industry training organisations (ITOs).

The ITOs will be replaced by new "industry skills bodies" which will be led by employers. They will become "bookends to the vocational education system", setting standards and checking that trainees have been well trained, but losing the role of managing training to the new institute.

It also aims to give polytechnics an incentive to place students into work-based training and apprenticeships as soon as they are ready.

The current system pays the polytechnics more to keep students in fulltime study until they finish their qualifications, making many young people "over-educated but under-skilled".

The proposed changes are far more radical than any of the options discussed in consultation with the sector last year and Education Minister Chris Hipkins admits in a Cabinet paper that "change on this scale will be disruptive".

He says disruption to students, apprentices and trainees will be minimised by "a carefully managed, phased transition plan".

But he has allowed only a six-week consultation period ending on March 27 and says "transition to the new institute can commence in 2020, with other changes phased as necessary to ensure a smooth process of change."

"The direction of the proposed reform is to maintain and grow ITP delivery in the regions," it says.

Each region would have a "regional leadership committee to advise the institute's national office and Tertiary Education Commission on local skills needs".

Regional campuses and wānanga may also host Centres of Vocational Excellence serving key industries in their regions.

However "a number of activities would be centralised at national office or at one of a few regional campuses".

A national governing council appointed by the minister "would agree long-term capital and operational strategies, oversee capital asset management and set and oversee operational budgets".

All details of financial implications have been deleted from the published version of the Cabinet paper apart from a line acknowledging: "Investment will be required to support the proposed vocational reforms."

The Treasury expresses alarm in the paper that decisions are being made "without a clear indication of the likely overall financial implications of the changes proposed, including short-term transition costs and enduring funding changes".

"We do not think that sufficient analysis has been undertaken of the options for enduring funding system changes proposed for consultation," Treasury says.

"We consider that consulting on these funding system changes is likely to create sector expectations about future funding, without Cabinet having oversight of the associated financial implications."

Hipkins acknowledges that there could be "further costs in future as a result of these change proposals" but says there would also have been costs if polytechnics were left unchanged.

"The financial difficulties ITPs are currently facing have occurred before, and will recur again, if the cycle is left to continue," he said.