Inside Story

The university rankings no government wants to talk about

Historically and comparatively, public funding of Australian universities is at a record-breaking low, writes Rodney Tiffen

Rodney Tiffen 24 March 2015 1783 words

Dire position made worse: education minister Christopher Pyne. Lukas Coch/AAP Image

At a conference of university leaders in early 2013, Tony Abbott promised “relative policy stability” in higher education if he became prime minister. A year later, Universities Australia began its first Abbott-era budget submission by welcoming “the undertaking of the government to preserve funding arrangements for higher education, including the commitment not to make further cuts to the sector.”

When it came, though, the Coalition’s first budget proposed cutting university funding by a breathtaking 20 per cent and removing the ceiling on university fees. Since then, the only stability in tertiary education policy has been education minister Christopher Pyne’s repeated attempts to have the Senate pass those measures. With the threat of financial catastrophe hanging over the sector, Universities Australia has supported the government’s proposals for deregulation, arguing rather coyly that the funding system is broken, but not indicating who broke it.

Although the government’s continuing failure to get its way has brought great political embarrassment, the two most notable aspects of the funding controversy have been its insularity and its short-term focus. It is almost impossible to tell from the parliamentary debates and media reports that Australia’s public funding of universities is now so stingy that we have become an international outlier.

In 2011, the last year for which full international data is available, Australia’s public funding of universities ranked thirty-third out of the thirty-four OECD member countries. Governments across the OECD spent an average of 1.1 per cent of GDP on universities; Australia devoted just 0.7 per cent. Six countries – including Canada, at 1.6 per cent – spent at least double Australia’s proportion of national income. Finland, at 1.9 per cent, tops the list.

The Pyne proposals would make the share of tertiary funding derived from private sources even greater. At the moment, private funding constitutes 0.9 per cent of GDP in Australia, which is almost double the OECD average of 0.5 per cent and puts us among the most privatised group. The relationship between income inequality and private share of university funding is striking, with relatively equitable countries, such as the Nordic countries, having the lowest, while several of those near the top of the list (Chile, Colombia, the United States) tend towards greater inequality.

It was not always thus. In 1975, at the end of the Whitlam government, Australian public spending on universities peaked at 1.5 per cent of GDP. Whitlam, whose government had made university education free, later said that this was the achievement for which he received the most expressions of personal and parental gratitude in the years after he left office. Under his Liberal predecessors, around 70 per cent of students had Commonwealth Scholarships, effectively making their tuition free. In The Whitlam Government, he cites survey data from the mid 1970s showing that, without his government’s changes, 20 per cent of university students and 25 per cent of college students would have been forced either to defer their enrolment or not enrol at all. Both the number of university students and, even more dramatically, the number of college students (in the binary tertiary sector of that time) increased during his government.

The next big policy move came in 1989 under Hawke government education minister John Dawkins. Arguing that university students came disproportionately from affluent backgrounds and a degree was a ticket to much higher earnings, and faced with a perceived need for budget savings, Dawkins introduced student fees. The payment mechanism was HECS (the Higher Education Contribution Scheme), a relatively equitable loan system that only triggered repayments as students’ incomes increased.

Dawkins also abolished the binary system, turning all the colleges of advanced education into universities. Government funding for the combined sector was set midway between the two previous systems, giving the old colleges a boost but essentially cutting 10 per cent per student from the budgets of existing universities.

Because the Howard government didn’t attempt any major legislative changes, its policies towards the sector rarely received much attention. But this was the crucial era in driving universities towards their present plight. By 2010, federal government funding of universities was down to 42.3 per cent of institutional income, less than half of what it had been just twelve years earlier. Fee-paying international students were contributing 17.5 per cent of total university income, or one dollar in every six. For both the government and the universities, international students had much more to do with the bottom line than with the needs of the students themselves or the pedagogical challenges their presence posed.

The 2008 Review of Australian Higher Education, instituted by the Rudd government, found that Australia was the only OECD country in which the real public contribution to tertiary education institutions in 2005 was no higher than it had been in 1995. In stark contrast, the average growth across the OECD was 49.4 per cent. The review also found that the amount of federal funding fell 12.4 per cent in real terms between 1989 and 2008, a period in which the costs of teaching and research rose sharply. The staff–student ratio in higher education, at 15.6 in 1996, had risen to 21.1 by 2008, a deterioration of about one-third in a dozen years. The real situation was even worse, because this figure takes no account of the increasing casualisation of the academic workforce.

Kevin Rudd had promised to restore Australia’s international position on university funding, but eventually this proved another case of over-promising and under-delivering. The same review recommended an immediate 10 per cent increase in public funding, but the government instead set up a Base Funding Review to establish “enduring principles” for public investment in higher education. Far from enduring, the principles collapsed within two years. Although some advances in funding were made during Labor’s first years, a 3.5 per cent “efficiency dividend” in 2013 amounted to a substantial cut. To excuse its funding failures, the government argued that it needed to reorder spending priorities after the global financial crisis and to free up funds for the Gonski school reforms. Within Labor’s policy settings, according to higher education policy specialist Simon Marginson, public funding of universities would fall to just 0.54 per cent of GDP by 2016–17.

The Labor government’s major policy change was to move to a demand-driven system, enabling Australian universities to admit as many qualified students as they wished. This essentially deregulated the volume, but not the costs, of university education, leaving institutions more able to compete against each other for more students. The result was that about 207,000 began in 2013, an increase of around 54,000 or 35.3 per cent on 2008. Ironically this surge in student numbers has been used to justify the need for further cuts to the sector.

It should be stressed that no government has ever sought or secured a mandate for dramatically reducing public funding of universities. No party has ever gone to an election with a reduction in investment in tertiary education as part of its platform. Indeed, polling commissioned by Universities Australia shows public opinion strongly in the other direction: 82 per cent agreed that cutting public funding for universities could threaten Australia’s future; 87 per cent supported an increase in federal government funding for universities. But governments looking for ways to cut or redirect spending think that this is an electorally harmless area to trim, and then trim again. Prime minister John Howard is said to have once told a meeting of Fairfax editors that cuts to school education pose a danger to governments but cuts to university funding do not.

Whatever the equity virtues of HECS, the private share of funding has significantly increased since its introduction. When it was launched, the private share of university funding was around 20 per cent. Now, although the figures are complicated by different formulas for different disciplines, it averages over 40 per cent. And if Pyne is successful it will dramatically increase again. For the past twenty-five years, the focus has been almost solely on the private benefits of a university degree, and this becomes an argument for demanding that students bear an ever-increasing proportion. The Grattan Institute’s 2012 report Graduate Winners: Assessing the Public and Private Benefits of Higher Education, for example, argued that graduates are such big winners that people would study even without public subsidies.

Universities Australia cites several studies that seek to quantify the public benefits of university education. Modelling by the Australian Workforce and Productivity Agency in 2013 found that each extra $1 invested in tertiary education would generate, on average, $26 in economic activity in 2025 as a result of increased labour force participation and employment. The OECD estimated a real rate of return for Australia investing in tertiary education at 13.4 per cent. KPMG-Econtech put the figure at 14.1 per cent and estimated that if government raised its commitment from 0.7 per cent to 1 per cent of GDP, then productivity would be 3.8 per cent higher by 2040. The increased government investment in the university sector would have a net funding cost of 0.5 per cent of GDP, while the net gain in living standards over the longer term is 5.5 per cent. University graduates typically pay between $300,000 and $540,000 more in taxes over their lifetime, which is eight times higher than the upfront amount invested.

Pyne’s proposals would make an already dire position much worse. But the current, prolonged impasse has put the crunch issue of funding clearly in the public spotlight. With luck it may become the moment when a generation’s drift towards ever-decreasing public support of universities is halted and reversed.

No principle exists for determining the optimal private–public funding split, and any government would probably find it too expensive to reduce the private component radically. But political parties should commit to stopping the continual downward drift in public funding. An affordable and simple formula might be that students should contribute one-third of the cost of expensive degrees (medicine, agriculture and so on) and 40 per cent for all others.

Political parties should promise to reverse the tendency of Australia – with public funding of universities at 0.7 per cent of GDP and falling – to be an international outlier. It may be too ambitious to more than double funds to match Canada’s 1.6 per cent; and an increase up to the OECD average (1.1 per cent) would mean increasing public funds to the sector by almost 50 per cent. Perhaps we’ll have to settle for the slogan “Let’s catch New Zealand.” Matching that country’s 1 per cent would mean increasing funds by around a third.

Further cuts to the sector would be disastrous. It doesn’t matter how many Intergenerational Reports we have if we don’t have governments committed to building a viable future. •

The link to the primary OECD data was updated on 27 March 2015.