Opinion & Commentary
Places left untouched by reform
The $5 billion Higher Education Endowment Fund announced in last week's budget gives the Government what it has long lacked: a positive symbol of its support for higher education. University leaders, whose reactions to government policy announcements are rarely more positive than "it's a good start", suddenly offered strong praise. The media's reaction was also overwhelmingly in favour. In a Newspoll on which two budget initiatives were of most importance to voters, a quarter nominated the fund as one of their choices.
In truth, the fund wasn't the most significant higher education announcement on budget night. Its projected investment returns, which will be available to finance capital works and research activities in the 2008-09 financial year, will be less than 5per cent of planned government spending on higher education for those 12 months. Fund income is likely to be less than 2per cent of total university revenue, once student fees and other income sources are taken into account. If fund proceeds replace existing infrastructure programs when they expire in a few years, the net benefit would be even lower.
The more significant budget changes will be to the way student places are distributed. These reforms could trigger a substantial reallocation of student places between universities and between disciplines. Unfortunately, this part of the budget package defies quick explanation and most media reports focused on its simplest but least important aspect, the abolition of limits on Australian full-fee undergraduate students.
Under the existing system, student places are distributed to universities via annual funding agreements. These give universities an overall enrolment target, plus sub-targets for 12 discipline-based funding clusters. Though there is negotiation around the edges between universities and the Government, generally the agreements reflect historical enrolment patterns.
Enrolling Australian students in excess of the funding agreement is discouraged. If universities take up to 5per cent more than their agreed quota, they keep the student contribution (the HECS payment) but do not receive any commonwealth contribution. In some heavily-subsidised disciplines, this means universities forgo two-thirds of the income they would receive for within-quota students. If over-enrolments exceed 5per cent, universities face a financial penalty. The one exception to the overall disincentive to take more Australian students has been the full-fee program, with universities permitted a 35per cent full-fee Australian undergraduate enrolment share, provided all government-subsidised places have been filled.
All these constraints are to be significantly relaxed. Aside from a few nominated disciplines -- particularly nursing, medicine and teaching -- it seems there will be far more genuine negotiations over funding agreements. A new Diversity and Structural Adjustment Fund will help universities shift their student profile towards "greater specialisation, diversity and responsiveness to local employer needs". For enrolments between the total target number and 5per cent above the target, universities will receive the same funding as for students within the agreed number. For enrolments in excess of that, there will no longer be a penalty, with universities keeping the student contribution amount. Once the agreed number of government-subsidised students is met, there will be no limits on full-fee Australian undergraduates.
These reforms give universities a rare opportunity to reshape themselves. They also provide an incentive to do so, as this package takes us closer to a competitive market. With unmet demand at low levels and with popular universities effectively getting a green light to take more students at the full commonwealth funding rate, some universities may not be able to fill all their places unless they align their courses more closely with student demand. Nationwide, about 30per cent of applicants did not receive an offer for their first-preference course in 2007, and it was nearly half in Victoria. Universities that complacently keep signing barely-changed funding agreements could find themselves short of students.
Abolishing the existing limit on full-fee places won't necessarily increase their numbers. Those universities that charge full fees similar to what they earn for a commonwealth-supported place could, through their funding agreement negotiations, save themselves some political grief by turning full-fee places into commonwealth-supported places. And as full-fee places find customers because the supply of student places is out of alignment with demand, a policy package designed to reduce misalignment should decrease the need for the full-fee alternative. In a few very high-demand courses, universities may be tempted to create a shortage of commonwealth-supported places by asking for fewer in their funding agreement and replacing them with full-fee payers. But the Government is already warning that approval to do this is unlikely to be given.
Although the higher education budget package is undoubtedly an improvement on the status quo, it is nevertheless a missed opportunity. By dipping only slightly into the HEEF, the Government could have created a full student demand driven system, sometimes called a voucher system. Under such a system, every Australian accepted into an approved higher education course would receive the discipline-based subsidy now received by within-quota students. Universities would be paid according to how many students they enrolled.
Voucher systems have two main policy strengths. They allow and encourage the supply of university places to match demand. For example, our shortage of health professionals would be much less serious if universities had been permitted to meet demand for health courses over the past 10 years. And with no guarantees of student numbers, universities must pay close attention to satisfying expectations of quality teaching.
Policy issues aside, a voucher system would have political advantages over the budget package. It would abolish the Government's chief symbolic problem in higher education, the undergraduate full-fee places. The argument for these places, that they alleviate the problems of a highly regulated system, is sound but too complex.
In politics, short arguments usually defeat long arguments. Voters believe that allocating university places to school leavers in order of their exam results constitutes fairness. In practice, universities have never strictly followed this notion, but it is hard to explain why in a sound bite.
A voucher system would eliminate unmet demand as a political issue. Applicants would miss out because no university would take them, not because the Government had refused to fund sufficient places. A voucher system would also head off a problem that will grow with the private higher education system: why should students suffer a significant financial penalty simply because their study interests do not coincide with what public universities provide?
The main political concern with a voucher system is that some campuses may struggle to attract students. But the Government already has a way of dealing with this in its funding floor, below which no university will fall, regardless of student numbers.
A bolder and better reform than the budget package was possible, and with the HEEF could have helped the Government completely seize the agenda in university policy. As it is, it will spend the months leading to the election in controversies over full-fee student places that they did not need to have.
Andrew Norton is a research fellow at The Centre for Independent Studies.
