Opinion & Commentary
The gap between us
At the budget lock-up for education last week, vice-chancellors and ministers enjoyed some rare moments of unity. Ministers Julia Gillard and Kim Carr were clearly pleased with their package of spending and reforms, and vice-chancellors offered praise and congratulations. After many years in which ‘a good first step’ was the highest praise governments could expect from universities, it was quite a change.
Compared with their low expectations, vice-chancellors certainly enjoyed a pleasant budget surprise. But in reality the budget still leaves a gap not only in their finances but in the government’s reform plans.
Since the mid-1990s, the indexation system for federal grants and student contribution amounts has delivered real annual cuts in the funding rate per student.
Though in the last four Coalition budgets real increases were delivered via other means, the process of real annual cuts to recurrent student funding was resumed by the Rudd government. By the end of Kevin Rudd’s first term, universities will have faced real cuts in 11 of the previous 15 years.
Cumulatively, the effects are very significant and clearly unsustainable.
To this problem, the government now has a response that satisfies vice-chancellors.
From 2011, indexation will be linked to professional salary movements rather than minimum-wage safety-net adjustments.
According to the budget papers, this will be equivalent to about a 1.8% annual increase in funding, above what universities would have received if the indexation method continued. But it does not undo the damage inflicted since the mid-1990s. It will just prevent it from getting any worse.
Even with indexation reform, the underlying rates paid per student will remain poorly aligned with costs at the discipline level.
These rates have their origins in a funding model designed to merge the universities and colleges of advanced education in the early 1990s. We could not expect this model still to be valid after more than 20 years, even if the indexation system had been better. An indexed wrong number is still a wrong number.
Though we lack high-quality data from across the sector on per-student costs by discipline, a limited study based on 2005 figures found that enrolling commonwealth-supported students was, in general, a poor financial deal for universities.
In half the 22 disciplines examined in the study, the commonwealth-supported funding rate was below average costs. In only six disciplines could universities hope, on average, to generate a surplus. It’s little wonder they have aggressively recruited full-fee paying international students to push up their average income per student.
Funding rates by discipline will be a much bigger systemic issue – rather than just a university budget issue – in the demand-driven funding system that will start operating in 2012. It will take us from a system in which the distribution of places between disciplines is determined centrally via funding agreements to a system in which the distribution of places between disciplines is determined in a quasi-market, with the price received per student place being the key incentive for universities.
In demand-driven systems, the financial reward from enrolling more students is the incentive universities have for meeting student demand. Without this reward, there is no incentive. When universities lose money on a discipline, the funding rates are disincentives.
Without funding agreements controlling their actions, on current funding rates universities could use the reduced regulation of the demand-driven system to start cutting places in loss-making disciplines.
The government realises funding rates are a problem. In the budget it announced a review, to report by 2011, of base funding levels to ensure that they ‘remain internationally competitive and appropriate for the sector.’ However, fixing the pricing system is likely to be more complex and expensive than just lifting the price per student place sufficiently to cover current costs, the minimum needed for the demand-driven system to function as hoped.
The complicating factor is the promised Tertiary Education Quality and Standards Agency, which is going to introduce ‘standards-based quality assurance.’ Nobody yet knows what those standards are, but the decision to mandate them suggests that the government suspects some courses are substandard.
Meeting the new standards may mean higher average costs per student. It would be untenable for the government to permit negative agency reports to destroy a university’s credibility in local and international markets while denying it the financial capacity to lift standards.
As the agency won’t be established until 2010, it will be a rush to arrive at defensible funding levels by 2011. But even if plausible income-per-place figures are recommended in 2011, there is no guarantee they will be funded for 2012.
The 2009–10 budget commits the government to strict spending discipline over the medium term, and relies on revenue projections that most commentators believe are over-optimistic. That the government refused to index university grants for its entire first term shows that it is perfectly capable of being as tough on the sector as the Howard government, if that is necessary for its overall fiscal and political strategy.
Though Gillard has ruled out general increases in student contribution amounts, her other policy initiatives will push fee deregulation back on to the political agenda in the next two years. Both the demand-driven system and standards agency are going to highlight the need for additional resources in most, if not all, disciplines.
With government finances exhausted, student fees are the only option left.
Andrew Norton is a Research Fellow at The Centre for Independent Studies.
