UPDATED 5.01pm A Tauranga school principal said if a new funding proposal goes ahead, children might be tagged as coming from dysfunctional families.

The Ministry of Education is considering using government-wide data to peg extra funding to individual children considered 'at risk', instead of using the current decile system.

Merivale School Principal Jan Tenetti said children who're considered at risk in higher decile schools are more likely to be isolated by their peers, than those in lower decile schools. She said privacy issues would need to be considered.

"There would have to be protection around those children in the higher socio-economic schools that there wasn't finger-pointing at those particular children, because of their circumstances."

Labour's education spokesperson Chris Hipkins said labelling isn't helpful, particularly when it's done using shoddy data.

"The fact that, for example, your mother doesn't have a high level of qualification does not automatically qualify you as at-risk, and in fact I think it's quite offensive to suggest that it would."

LISTEN ABOVE: Education Minister Hekia Parata speaks to Mike Hosking

But Education Minister Hekia Parata said the idea is not about stigmatising children, it's about finding an alternative to a decile system that doesn't work as well as intended.

She said they're not interested in categorizing children, it's about getting the right resources to the right children, at the right time.

Ms Parata said schools that come out at the bottom of the census review pile consider themselves losers.

"The decile system really doesn't work as well as it's intended, and our Government has for some time now been looking at a social investment approach, which is how do we intervene early and make a more positive difference for the lives of our young people," she said.

ACT party leader David Seymour supports the idea as it stops high-need children being missed if they're the exception in an area.

"I know of kids who have very high needs and yet live in a neighbourhood where thier neighbours have low needs".

"I also know that people who get less decile funding, but have higher needs, resent the fact that they get lumped in".

The Maori Party's open to backing the reforms too.

Maori Party Co-leader Te Ururoa Flavell said focusing on need is definitely something his party would support.

"It's shown that there are all sort of discrepancies with how the decile ratings are set. From our perspective, looking at the need would be very important for us".

Meanwhile the Secondary Principals’ Association has said it could be a good thing but is warning some protections would need to be put in place for children if the changes were to go ahead.

President Sandy Pasley said it would stop parents judging schools by their decile ratings. But she said children would need to be guarded against stigma from both schools and other students.

SEE ALSO: Sandy Pasley: Changes to school funding a good thing

The risk factors that would calculate a student's funding include whether they have parents who've been to prison, been on welfare for a long period, or if the mother has no formal qualifications.

But she acknowledges a change would be good at debunking the public’s perception of lower decile schools. She said some parents misinterpret the decile system, thinking it measures how well a school is doing and that’s not the case.

“People judge a school by the decile, they don’t look at how the children in that school actually achieve. It’s been a labeller that’s schools for a long time have been very keen to see removed.”

SEE ALSO: Schools shake-up: No more deciles?

The New Zealand Educational Institute said playing around with social figures and looking at issues with deciles won't fix the appalling under-funding of schooling.

National Secretary Paul Goulter said nothing will change until the government realises this.

"We think that the documentation from the Ministry of Education completely misses the point. The real point here is there is a chronic under-funding of New Zealand schools, and that's the real problem right across the board."

Goulter said all around the country parents are being asked to donate more and more money.