The Treasury says student-teacher ratios in schools could be increased and some schools closed – with the savings used to improve the quality of teaching.
Finance Minister Bill English has not ruled out implementing the advice given to him in briefing papers.
"All Government departments are having to look at all their costs and education will not be an exception," he told Radio New Zealand yesterday.
"The fact is while we've put a lot more money into education and are keen and willing to invest more particularly through technology and ultra-fast broadband, we need to be sure it is actually adding to achievement."
Analysis by Professor John Hattie has shown that class size is one of the least important factors in determining student achievement.
The Treasury said student achievement could be raised by improving the quality of teaching "which the evidence shows is the largest in-school influence on student outcomes".
"Increasing student-teacher ratios, and consolidation of the school network [cutting the number of schools] can free up funding that could be used to support initiatives to enhance the quality of teaching …"
The Treasury said New Zealand's education system "produces good outcomes for most students, as evidenced by our strong performance in international tests".
But despite large funding increases, achievement levels for some groups remained unacceptably low.
Ian Leckie, the president of the primary teachers' union, the NZEI, said increasing student ratios and closing schools would be a huge step backwards "and I don't think schools, parents or communities would be willing to accept it".
The Treasury also suggested that expenditure on tertiary education in New Zealand was high in relation to other advanced countries.
"There is scope to achieve fiscal savings, primarily through reintroducing interest on the student loan scheme."
Professor Hattie's 2009 book Visible Learning analysed 50,000 educational studies covering 83 million students around the world. He concluded that class size, amount of homework and which school a child attended had little effect on learning. The most important factor was pupils' ability to assess progress and to discuss with the teacher what they needed to do to improve.