Party leader Andrew Little announced the long-term "Working Futures" plan today at a State of the Nation speech in Auckland, which would stretch over three terms of a Labour government.
It will provide three years of free post-school education over a person's lifetime and can be used for any training, apprenticeship or higher education approved by NZQA.
It includes both full or part-time study and does not have to be used at once.
The plan will not affect the existing living allowances and course-related costs. It would cost $265 million in the first year and $1.2 billion once fully implemented in 2025.
Mr Little said the plan was designed with the future of an automated workforce in mind.
"The nature of work is changing rapidly and our education system must keep up if we are to seize the opportunities of the future. To compete in the new economy, New Zealand needs one of the best educated workforces in the world," he said.
"Our Working Futures Plan will mean that no matter what path someone wants to take after school, be it university or an apprenticeship, they will be able to get the skills they need to succeed without being shackled with years of debt.
He said the education would be available throughout a person's lifetime, so can be used for re-training, meaning businesses will always be able to find the skilled workers they need to succeed.
"Right now, New Zealand is being left behind in the global economy. Our economy is stalled, inequality is rising and the Kiwi Dream of a home of your own, a stable income and time with family and friends is slipping away.
"Labour will prepare New Zealand for the future - with a world leading education system supporting the innovative and job-rich economy we need to get ahead."
If Labour were elected, the plan would be introduced in phases, with one year's education available from 2019, two years from 2022 and three years available from 2025.
Mr Little said the policy was affordable from within current budgets. It would use money the government has earmarked for tax cuts.
The party would be conducting a line by line review of the tertiary education sector to ensure courses are providing value for money.
In documents released alongside the announcement, Labour said that under the current government it had become harder and more expensive to access education after high school.
The material said since National became the government, the number of tertiary students has fallen by 20% and the number of apprenticeships is down 22%. In that same time, total student debt had increased by over 50% and is expected to hit $15 billion this year.
It said National had put in more barriers to post-school education, while at the same time institutions were forced to raise fees. It said that was a direct result of the Government increasing funding by only 3.5% while training providers faced costs rising by 9%.
The government has made it harder to get student allowances and has put caps on the length of time students can study. Student numbers are now forecast to keep falling until 2020, it said.
The policy is a departure from Labour's previous position, where at the last election it focused more on reducing costs for parents at schools and early childhood education, and on supplying technology for all school-aged students.
Act leader David Seymour said if the policy was introduced, it would lower the quality of education.
He said the "tumble" in world rankings and interest-free loans were connected, quoting stats that showed since 2006 the University of Auckland has fallen from 46th to 82nd and the University of Otago to 173rd from 79th.
"Labour's approach to education is funding for votes, and quality be damned," he said.
He said the party had a history of introducing politically popular policies that emphasised quantity over quality.
"Moreover, students will have no skin in the game. Right now the deal is: you back yourself, borrow a quarter of your course cost and the taxpayer picks up the remaining three quarters. Labour are now saying the taxpayer pays the lot.
"With Labour everybody will have a certificate, it just might not be a very good one."
Head of the Tertiary Education Union, Sandra Grey, said the policy gave "people from all walks of life" an opportunity to learn.
"It has been a long time since anyone has talked about investing money in tertiary education for the good of students, and for the good of people, rather than for the benefit of business," Grey said.
"This policy will help people get jobs but it will also help them give back to their communities and inspire their families."
What does the policy contain?
•Three years of free post-school education over a person's lifetime.
•Can be used for any training, apprenticeship or higher education approved by NZQA and can be used for full-time or part-time study. The three years don't have to be used all at once.
•Will cost $1.2 billion a year by 2025, with the first phase funded from money earmarked by the government for tax cuts.
•Would be introduced in phases, with one year's education available from 2019, two years from 2022 and three years available from 2025. It will not affect the existing living allowances and course-related costs.
•The first year will be available to all new school leavers from 2019 for all NZQA approved courses, including all apprenticeships, and to every New Zealander who has had no previous tertiary education.
•There will be no age limit, reflecting the increased importance of lifelong learning in the 21st Century economy.
•To be eligible for the second and third year, graduates will need to pass more than half their courses in the first year.
