The Government has proposed merging all 16 of the country's polytechnics as the New Zealand Institute of Skills & Technology.
"It's time to reset the whole system and fundamentally rethink the way we view vocational education and training, and how it's delivered," Education Minister Chris Hipkins said.
The idea was proposed by Mr Hipkins last year when he told Newshub Nation in August that polytechnics across the country would likely have to merge or shut down due to low enrolment numbers.
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The Government's proposal on Wednesday highlights the need to strengthen vocational education so that those leaving school can get more training opportunities during a time when the country is "facing critical skill shortages".
"The strong labour market is encouraging young people to move directly into the workforce rather than continue in formal education, when it needs to be smarter and accommodate both," Mr Hipkins said.
"And our system isn't geared up for the future economy, where re-training and up-skilling will be a regular feature of everyone's working life.
"Instead of our institutes of technology retrenching, cutting programmes, and closing campuses, we need them to expand their course delivery in more locations around the country."
Mr Hipkins said the development of courses and programmes would be "consolidated, improving consistency and freeing up resources to expand front-line delivery".
He said there will be "more sharing of expertise and best-practice, and more use of online, distance, and blended learning".
"The Government envisages that the New Zealand Institute of Skills & Technology, and perhaps also wānanga, host Centres of Vocational Excellence (CoVEs)," he said, suggesting the centres could have specific focuses, such as agriculture.
"What we are proposing is ambitious, but it needs to be. We cannot continue to tweak the system knowing that the model is fundamentally broken, and isn't delivering our workforce the skills that they need to thrive."
The proposals won't go ahead until the Government has received feedback from public consultation which is open until March 27.
Mr Hipkins said last year the Government would have to make significant investment just "to keep the [polytechnic] sector afloat". West Coast Polytechnic Tai Poutini, for example, received a $33 million bailout.
But not everyone's pleased with the proposed shakeup, with Garry Fisseden, CEO of The Skills Organisation, saying students will be disadvantaged under the proposed vocational sector reforms.
"Through close relationships with thousands of employers and trainees, ITOs (Industry Training Organisations) have an essential part in bridging the communication gap between industry and learning institutions.
"Employer engagement in industry training is essential to its success - the proposed new model puts this relationship, the responsiveness of training programmes to business needs, and the employment opportunities of thousands of students in jeopardy."
Cabinet papers last year estimated 80 percent of polytechnics would be making a loss by 2022 on current enrolment figures.