Federal Budget Update

The big news for the last week has of course been the Federal Government’s budget proposals for Higher Education. I will come to these a bit further down but wanted to deal with some good news stories first.

The first thing I wanted to note was the changeover in Presiding Officer for Academic Senate. Professor Ben Bradley has now been replaced by Professor Jo-Anne Reid. Senate is a very important feature of a university because it is the mechanism through which the voice of the academy – separate to the corporate considerations of running the University as an organisation – can be distilled and articulated. This in fact is legislated as part of the Charles Sturt University Act. Senate achieved a lot in the period in which Ben was the Presiding Officer and Jo-Anne served as the Deputy and I want to thank them both for their contribution to the University through that. Naturally, I would also like to thank Jo and indeed all the members of Senate for continuing to perform this important work for the University.

Second, congratulations to Residence Life for winning the 2014 College/University Housing Operation of the Year. This is a terrific achievement and a testament to the hard work done by the staff in Residence Life. We count the students who are employed as Resident Advisers as part of that staff and having attended their training sessions for the last three years I have been really impressed with their enthusiasm and commitment. All the staff should be (and are) very proud of this and at a time when more than ever we need to focus on providing excellent services to students this is a great affirmation of what we do.

Third, congratulations to Charles Sturt Campus Services at Orange who achieved 1000 days without a lost time injury. This again is a terrific achievement – I have been very keen to encourage everyone to be vigilant about workplace health and safety and it is really good to see areas celebrating their achievements.

Fourth, I wanted to give a plug to the CSU Academic Women’s Association which is providing mentoring and support for academic women across the University. In common with most universities, women are under-represented at senior academic levels and one of the targets in our strategy is to improve this. I hope this will complement other initiatives to assist women to build their careers.

I would also like to note that this week is National Reconciliation Week. I think this has been rather overshadowed by the discussion of the Federal Budget. Having just written an acquittal of the University’s performance, one area where we have clearly been successful is in increasing Indigenous enrolments and Indigenous staff numbers. That I hope is making a continuing contribution to reconciliation.

So now to turn to the Federal Budget.

Here are my thoughts on the government’s proposals on fee deregulation, which are quite lengthy, but this is a critical set of reforms for the sector and for us.

Let me start by saying I do not argue that we need to balance the Federal budget over the longer term. I would also agree that we have probably been too generous in terms of personal tax cuts and tax relief. However, personally I would have preferred us to have had a decent conversation about the balance of taxation and welfare before the last election which would have allowed the electorate to make a more informed decision. This is not a particular criticism of the Government as neither Labor nor the Coalition really facilitated this conversation. In any case despite that we now have proposals which are acknowledged by the Minister to be the biggest reform in 30 years and I do not think he is exaggerating. What do they mean, what are the advantages and what are the potential problems?

The major aspects for me are:

1)   A deregulated fee market – universities are free to charge any amount for domestic tuition as long as it does not exceed international fees. My presumption is that this means that domestic fees at a university cannot exceed the international fees at that university.

2)   An average across-the-board reduction by 20% of government support for student tuition. This will shift the balance of average student contribution from 41% to about 52%. Note that because students were paying less, this means that the proportional increase for students is more like 27% – assuming the overall cost of education doesn’t change.

3)   HECS debt to carry a real rate of interest equivalent to the 10-year government bond rate capped at a maximum of 6%. This is an increase of something like 1.5% and means that, unlike now, if students are not paying off their debt it will be growing in real terms (assuming that inflation stays below 6%).

4)   If universities raise their fees beyond the amount required to replace lost government support, they will be required to put 20% of the money raised into a scholarship fund which will be available for use at that university.

5)   Sub-degree places will now be uncapped and covered by commonwealth support.

6)   Private providers and TAFE will also have access to commonwealth support. The government sees this as contributing to competition (the Minister talked about an ‘adrenaline jolt of competition’) in the sector.

7)   PhD students will also be required to pay a part of their tuition costs, which will also be supported via a HECS loan.

8)   Any student who enrolled after the date of the budget (13 May) will move onto the new fee arrangements from 2016. Anyone who enrolled before that date will stick with the existing fee arrangements until the end of their course, until they change course, or until 2020 whichever is the earlier of the three.

9)   The government has committed to an additional year of NCRIS (National Collaborative Research Infrastructure Scheme) funding and to fund Future Fellows for the foreseeable future.

A point of detail to note, there was early concern that there was a threat to our Dental school because of the budget changes. We did lose $15m that had been pledged by the previous government to build additional dentistry clinics in Taree, Kempsey and Port Macquarie. This would have allowed us to expand clinical placements and hence student numbers as well as working to reduce the public dental waiting lists in that area. The loss of this funding does not affect our existing operations but as noted will prevent any expansion of Dentistry or Oral Health on the Mid-North Coast.

The government’s view is that the suite of proposals provides a fair balance of costs between the private benefits that students receive and the benefit that the nation receives from higher education. Whilst many people have drawn comparisons to decades past where higher education was free, or substantially cheaper, that was a very different world. A very small proportion of the population attended university, there was very much less gender equity and very much less social equity. I do not think it is realistic to expect that we could make higher education free with the participation rates that we have now. That is unless we are prepared to pay a lot more income tax, which it seems we aren’t. So I don’t think we should be debating whether students and graduates should bear some of the cost, what we need to debate is whether policy settings will drive the kinds of social and economic outcomes we are looking for.

Good things in these proposals are that the demand driven system is retained, that sub-degree places are included and that the Government has committed support for NCRIS and the Future Fellows scheme. I think it is reasonable also that private providers be brought into the system, provided we retain some means of funding the social good part of public universities’ missions. I will talk more about the possible problems with fee deregulation below, but it has to be said that an unregulated market in the international space released a lot of creativity and entrepreneurialism from universities and grew international education substantially. Of course, that was bringing new money into the country, not redistributing existing money within the country.

So what’s likely to happen? The Minister has suggested some fees might go down. According to our calculations Mathematics and Humanities will be receiving more government support than they currently do and, if substituting commonwealth money with student fees is all we do, that would allow a reduction. Fees in all other areas would have to rise, simply to replace the money removed by the government. For CSU we calculate this to be an average of 23.5% across the board. Some areas would need to rise substantially. Science fees would need to be increased by 62%, Agriculture by 48% and Environmental Studies by 114%. Is it going to be as simple as this? I don’t think so because we will need to consider the totality of the fees we set so that we can do the best job for our communities and we will have to see how the market behaves, and what happens to student demand, when it starts operating in 2016. I will have a bit more to say about how fees might play out below.

So what are the potential concerns? My first concern is with the pretexts on which this is being pursued. The first pretext is that we don’t have enough diversity in the sector and that diversity is a good thing. I agree with the second proposition but not the first. Early last year I attended a workshop on the U-Multirank tool run by the LH Martin Institute. The conclusion of this workshop was that in fact the sector is already very diverse. Charles Sturt University is nothing like University of Sydney, nor does it wish to be anything like it. We have very different missions, cater for very different student demographics, have different levels of research intensivity and we employ different kinds of staff. We teach more than half of our students by distance education and USyd teaches almost all of theirs by face to face. I think what people from Group of Eight universities mean when they say ‘we don’t have enough diversity’ is ‘we don’t have teaching-only universities, and therefore we have to share our research money with universities that shouldn’t have it.’ This to me is not a good reason for seeking more diversity. I did my first degree at what was then Trent Polytechnic. The staff were mostly professional engineers with a couple of researchers thrown in. They took their teaching very seriously and they did a very good job. However, there was a bit of intellectual spice missing from the education and at the end I did feel a little bit like I’d had the creativity beaten out of me. That was probably OK in 1989 but given the way the world is changing I think we need more flexibility of thinking, not less and I think the inclusion of some research in the culture is important to that end. In both Australia and the UK the binary divide was abolished for a reason and we are better for it.

The second pretext is that fee deregulation will allow Australian universities to climb up the global university rankings. Noting that these are almost exclusively research rankings, I remain to be convinced that requiring students to provide increased funds is going to do the job. On the Times Higher Education rankings, our highest performer in 2014 is the University of Melbourne at 43. To make it into the Top 20 it would need to more than double its score to 14.9, and this at a time when particularly Chinese universities (from a country of one billion people, let’s note) are having mind-boggling quantities of funds injected by their government. On the ARWU rankings, Melbourne again is our highest performer at 54 with a score of 30.2. To lift itself into the top 20 on the ARWU, it needs to improve this score by about 50% and go past University College London and Imperial College as well as the Universities of Illinois, Toronto and New York. If the Go8 are serious about shrinking their student numbers to get more focussed, their undergraduates are going to be paying a very high price indeed for this kind of ambition. I have previously suggested we might be able to pull this off by merging Melbourne and Monash or Sydney and UNSW, selling one of each of their campuses and investing the proceeds in research. I hate to be a grouch, but personally I’m not even sure what, apart from national bragging rights, would be the advantage of having two universities in the Top 20 as opposed to six in the Top 100? What would be the benefit to the economy or community?

The second concern I have is with the impacts on workforce supply. In the existing system we have been able to boost the supply of skilled professionals in regional areas. I worry that this may be undermined by these changes as regional students are put off studying. It would appear that the current higher education market has saturated – that is that the demand for higher education at its current price has plateaued. Assuming that the higher education market operates like any other, we are now looking at a substantial increase in price and we would therefore have to assume that some students will decide not to come. Universities have many fixed and semi-fixed costs which, even if staff were shed to match the fall in students, would not scale down at the same rate. On top of this, note that the Minister’s intention is for universities to be better resourced as a result of these changes “education institutions themselves will be able to grow, to employ more people and invest more back into their local communities.http://budget.gov.au/2014-15/content/glossy/education/html/index.htm Both of these would suggest that fees will need to rise more than the simple replacement value. On top of this, it should be noted that in previous fee deregulations around the world, fees have risen. The most recent example of this is in the UK where fees tripled – almost all of them up to the cap. I find it very difficult to believe therefore that fees will not rise beyond the simple replacement value which is likely to deter even more people. The minister may be counting on private providers and TAFEs to provide enough competition to restrain price rises and to expand supply. However, if this does happen note that even if it’s good for students it will go against the idea that universities will be able to grow and invest more into their communities as suggested in the budget material above.

The third concern I have is with the scholarship fund. As currently planned, this requires 20% of the additional dollars raised above the replacement level to be put into a fund in each university for scholarships. Quite clearly, the most elite universities will be able to charge the highest prices and will therefore have the largest scholarship funds. Currently, these universities have the lowest level of low SES students. This therefore runs the risk that they will be incentivised to recruit students from regional Australia and if, as the Minister intends, competition restrains fees elsewhere in the market, the universities who currently support the most low SES students will be least able to do so. This is a fundamentally regressive proposal which in my view needs to be changed.

Other concerns follow for me, including knock-on macroeconomic effects like graduate wage inflation and the possibility that if the sector raises fees too enthusiastically there might be some rapid re-regulation. I mentioned regional work force above, there is also the possibility that the prices we set (because of the costs of programs like agriculture, veterinary science or engineering) are out of whack with student demand and we end up with even worse labour market shortages in regional areas than we already have.

What does it mean for Charles Sturt University and other regionally-based universities? It’s really hard to say. It seems almost certain to me that we will lose some students who have the least financial resources. We already know that some students struggle to attend university and this may be enough to deter them. It is possible that some students currently moving to capital cities to study may decide to stay in their regions instead. Perhaps it will increase the trend of some students studying for a year or two before moving to the city to finish their degree off and vary their experience. It is possible that more students may decide to move from metropolitan areas to regional areas to study. It is really difficult to do more than guess what the combined impacts may be. We have a great reputation for being entrepreneurial but I think we would be foolish to think that Charles Sturt University will be unscathed or significantly better off. I suspect we would at the very least be significantly different. It will take quite some time to fully work this through. I am hoping that compromise can be reached on the proposals as the budget makes its way through the Senate. Certainly at the moment Labor, The Greens and the Palmer United Party have said they are against it. We will begin to do contingency planning and work out how we will walk the path through the next few years as things unfold. I think this will amplify the existing trends of competition and privilege, much of which is based on history, in the sector.

As a final point, the Organisation for Economic Cooperation and Development (OECD) produces a regular report called ‘Education at a Glance’. One of the sets of tables in this gives a calculation of the private and public benefits of tertiary education. For Australia, the private rate of return is approximately 9% whereas the public rate of return is approximately 13%. I don’t know what difference these proposals might make to this (perhaps any economists reading can) but I think it does indicate that simply making the tuition costs 50-50 between students and the state does not necessarily give the full picture on the full benefits. My concern is that we do not unintentionally shrink the system and therefore undermine the benefits both to individuals and to our communities.

Finally, the changes in higher education policy are a very important step for our nation. I think our local Members of Parliament need to hear your opinions on this as they decide what to do about steering the budget through the Senate. The government has indicated it is willing to make compromises and it is important that they are informed about community opinion. You may be in favour of these changes, ambivalent, or dead against them and I would be very relieved to discover that none of our students is worried by these proposals. However, I think democracy would be served by sending an e-mail to your local Federal Member of Parliament to let them know your thoughts. They do take community feedback very seriously and it will help them to understand your perspectives and therefore hopefully make wise decisions.

For my part, I look forward to hearing your thoughts through the comments, or to vc@csu.edu.au if you don’t want to express them publicly.

 

 

About andrewvann
Vice-Chancellor and President at Charles Sturt University

12 Responses to Federal Budget Update

  1. Andy, your thoughts are always worth reading and I appreciate the recognition that the sheers volume of numbers atempting Higher Eduction these days precludes free access. The Dawkins paper A Fair Go for Everyone from back in 1990 really set the stage for the conversation about equity and moving university from an elite activity to a mass credentialling activity. These issues of equity have continued to be raised regualrly since that time and the reasons for expanding access participation have expanded into recognition that Australia needs the numbers of skilled workers to compete in global markets. I understadn a user pays system and there are some university qualificiations that lead to very high earning careers where personal wealth is a significant attraction to embark on those career pathways. We do need to recoup some of that investment but I am fearful that the newly proposed changes will not achieve this, rather they will again, disadvantage the most disadvantaged.

  2. Jennifer Weller says:

    Hi Andy
    I think I know what I don’t want from the proposal but if Im going to talk to the minister- what is it I do want? Its a very complex landscape and I think maybe many of us would put pen to paper or keys to email, or make an appointment if we know what we wanted instead.

    Being relatively new to the sector most of things I see tend to be at a micro level and in some cases WITFM level. Noting things like small classes being dropped to one lecture a fortnight which decreases my income and upsets my students as they have paid the same fee.

    Understanding that the Uni is trying to deal with issues like these means you don’t complain. However students are.

    Could you give us the bones of what we should be asking for, that in your more informed opinion, would help us to achieve our mission most successfully . This we can then adapt for our own communication with the minister?

    I would also be happy to raise it at our next RDA meeting for the committee to write to the minister directly.
    Jen

    • andrewvann says:

      Hi Jen,

      Here’s my view of what would make it better:

      1. Defer the start date. Even the Minister struggles to get the message right when interviewed (see yesterday’s Insiders) so I don’t think we can be expected to set fees for students enrolling now. We need a proper consultation period to get the settings right before we press the go button.

      2. Reduce the real rate of interest, at least for low income, rural and regional students. If it were linked to annual earnings this would also benefit women taking career breaks.

      3. Challenge the withdrawal of government funding. This report http://www.universitas21.com/ranking/map suggested we were in the top 20% of higher education systems across the world, and the main thing holding us back from being further up was the poor levels of government funding.

      4. Amend the cluster funding rates so we don’t get impacts on areas like Agriculture which are national priorities.

      5. Change the proposals on the scholarship fund so that individual institutions don’t get to keep all the extra 20%. If it were nationally pooled there would be more incentive to restrain fee rises and more opportunities to mitigate the downsides.

  3. Margaret Van Heekeren says:

    Thanks Andy for sharing your thoughts on the impact of the changes in relation to CSU, which is important knowledge for all who work here as well as our communities. It’s got me thinking that there’s little point in having a demand driven system for anything if the product becomes so unattractive (in this case expensive) that there’s no demand or reduced demand. If the net effect is a drop in student numbers, what we’re getting is more like regulation by stealth than pure deregulation.

    • andrewvann says:

      Thanks Margaret, getting the price signals right is the tricky bit. If the settings don’t encourage enough price sensitivity, fees will rise substantially and we’ll have a debt blowout which is a problem for both students and the government (although providers might enjoy a brief bonanza). If the settings encourage too much price sensitivity (as you say if the product is too unattractive) the market will crash and we will destroy a lot of good existing capacity. I’m not sure whether there was detailed economic modelling done by the Department on this – the papers we have been able to find on price sensitivity are from the US which provide a bit of guidance but it’s a totally different context. There have been the reports from the UK that low SES enrolments have increased, but they do have a cap and an interest rate which varies with graduate salary. This is my worry (and that of Universities Australia) about starting on the system without understanding what it might mean.

  4. Mike Cahill says:

    Analysis of the Budget by the Australian Academy of Science: http://www.science.org.au/news/academy-budget-analysis-shows-extent-cuts-science

  5. mimzin says:

    Andy, your thoughts are always worth reading and I recognise the issues of student funding and your acknowledgement that the sheer volume of numbers now precludes free tuition at university. The paper by Dawkins back in 1990 A Fair Go For All was a great introduction of the ideas of equity in access to higher education and the idea that university was no longer an elite activiy but a form of mass credentialling, I fear that the promotion of trailing debt will outweigh the prospect of increased life-time income in the decision-making for prospective students. There are many qualifications and accreditations that will lead to significant life-time earnings and personal wealth that are based in high-cost university course and for which the community should, rightly, seek repayment. However, there are also manu university degrees that lead to qualifications supporting caring, low-income or NGO types careers where the capacity to repay should be judged through the career community contriibution rather than the financial return .

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  7. Nick D says:

    Thanks for the detailed analysis Andy!

    The massification of tertiary education is a challenge for societies, but so was the massification of primary and secondary education. And we cracked those, and afforded them. I think there’s a clear philosophical argument here that gets lost in the details of the money, about the nature of education and why we need it. It’s very clear that for some tertiary education is still an elite thing, reserved for a small subset of the population, Many countries rejected that decades ago, and have reaped the benefits with a general rise in overall education of their populations, and all the spinoffs that’s created. Sometimes I think it helps to take the argument back to first principles like that, rather than let people spin the numbers.

    I do also think that politically it’s important to recognise that competition is not really what motivates changes such as this. Just as it wasn’t what motivated earlier changes to health with the private health insurance rebate, or to secondary schools with the funding formulas there. The current conservative philosophy (and I don’t say that in a pejorative way, it’s a perfectly valid set of ideas if you’re of that persuasion) is resolutely anti-State – its single biggest priority is the winding back of public institutions. So I think we shouldn’t be naive that the wish is to let competition run freely, that’s certainly not what was done in health or secondary education, there the intent was to gradually undermine the State institutions. With spectacular effect, particularly in schools.

    As George Lakoff, one of the founding thinkers about political framing (the main technique used by political parties in the past few decades) has often said, it’s a terrible mistake to think that there’s such a thing as a ‘political centre’, or more generally a centrist compromise position. So with these changes, the idea that they can be tweaked to each person’s advantage is seductive, but all that does is shift the grounds of the debate every day incrementally further towards that philosophy described above. I’m very glad Andy that you’re one of the few prominent public voices in education who still calls a spade a spade.

    • andrewvann says:

      Behind the paywall for The Aus, but this story from this morning has some of the same concerns:

      http://www.theaustralian.com.au/higher-education/christopher-pynes-plan-mistaken-says-the-academic-who-pioneered-it/story-e6frgcjx-1226942042959

      Personally, I think the current proposals are misguided even if you take a narrowly instrumental view of higher education – which I don’t. Your point about competition is a good one which I’ve been musing on since watching the Minister on Insiders on Sunday. The usual political argument for competition is the economic one that it drives price and resource use efficiency. However, I think a problem is that competition for educational institutions, and competition for educational achievement for individuals, has a large measure of display built into it. By this I mean that individuals want to maximise their attractiveness to employers and their social status by acquiring credentials, and institutions want to maximise their brand by being selective and being the most research intensive they can be. As we are seeing in the current environment, that’s what allows you to bid up your price. Being more efficient and lowering your prices is more likely to lead to you being seen as lower status and less attractive. We have very clearly seen this in the discussions about the demand-driven system; using resources to educate people who wouldn’t previously have come is seen as lowering quality and reducing the value from the system, not celebrated for the value it has delivered. What has been seen here and everywhere else in the world when fee regulation is relaxed or when government money is withdrawn is an increase in price at the top end, matched by increases in price right through the sector, together with concerns about sharp practice in enticing students into the system at the lower levels of preparedness. Eventually (as in the US and UK systems that have been celebrated by the Minister) there is a concern about the level of debt in the country and whether education is affordable – which is where the conversation started except now individuals are carrying the debt instead of the government.

      Universities Australia and the Minister have both released analysis on the impacts on graduates. I think the UA work is more believable and I think it’s too conservative. For example, if fees rise as I expect we will have professionals such as engineers paying an extra 8% tax to cover their loans for the decade and a half in which they will be trying to raise a family and buy a house. That sounds like a Great Big New Tax to me.

  8. Nick says:

    Thanks Andy, and that’s a very good point, about perceptions and fees. At first glance it seems an opportunity for CSU, because we could undercut the Go8 for example on price. But experience in the school sector is a clear warning there – people are still rushing in droves to enrol their kids at much more expensive private schools, even though their local public school might offer something of the same or better quality for next to nothing. The psychology of this is what’s important, not the numbers (or as Lakoff would say, it’s all about peoples’ deep moral values, not the facts).

    Have you seen Nina Clemson’s fee calculator for women, which models these changes for a range of different scenarios for working women? Scary numbers.

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