Below is an opinion piece I wrote with Ben Phillips from NATSEM, published in The Australian on 18 February, 2015.  You can also view it by clicking here.

WHAT, or whose, problem is the government trying to solve in its revised higher education reform proposals?

Last Friday at the University of Canberra a fascinating round-table forum brought some of the country’s most experienced higher education thinkers together to examine the evidence of “the problem”, and some possible solutions, under Chatham House conventions of non-attribution.

We heard that Australia has been spending about the same per student as social democracies such as Germany, Finland and The Netherlands, and that we are on about the OECD average. Where we differ is the proportion that students are expected to pay (through HECS): they already carry a far greater financial burden than most OECD nations.

When scaled for size as a country, Australian universities do remarkably well in world rankings. If we take those in the Academic World Ranking of Universities top 500, Australia comes fourth when scaled for population and fifth when scaled for gross domestic product. In 2004, we had 14 universities in that set. Last year we had 19.

Is something about to change dramatically, within Australia or globally, that should make us alarmed? In Australia, the answer seems to be no. In fact, higher education will consume a smaller proportion of GDP in the future.

The government’s Intergenerational Report showed in 2010 that higher education spending will take a declining share of GDP, falling from 0.6 per cent to 0.5 per cent by 2050. The ageing society is a key driver behind this trend, as the share of the Australian population aged 18 to 24 — the main demographic for higher education — falls from 9.8 per cent in 2011-12 to 8.3 per cent by 2050.

Australia will indeed face significant fiscal pressures in coming decades. However, these are largely related to health, aged care and the aged pension, which in combination increase as a share of GDP from 7.5 per cent to 12.8 per cent. The next Intergenerational Report, expected this month, is likely to show a small uptick in higher education spending due to the uncapping of student numbers, but the overall long-term projected trend is unlikely to be greatly altered.

Globally, there is indeed a sense that some other countries are investing heavily in universities and will somehow blast us out of rankings. But if a country with a huge population decides to invest in a relatively small number of universities to ensure they move to the top, is it seriously supposed that a small cohort of young Australians paying fees, borrowed from the taxpayer, should be called on to resist it?

If we deregulate tuition fees, the evidence elsewhere is that they go up considerably. The government was warned about this explicitly before the budget last year by its own National Commission of Audit, which added gratuitously that there was no clear evidence that higher fees would lead to improved student outcomes either.

But it isn’t only students who would be losers under the proposals. It is the taxpayer too. The abandonment of the long-term bond rate on HELP debts means the commonwealth will be advancing much more money to universities than in the past, and using borrowed funds that ­attract a higher interest rate than it is going to charge graduates.

HELP works well within a system where sensibly capped fees are shared between students and the government. Uncapping fees introduces a moral hazard where universities are guaranteed payment. HELP is not like a normal loan. Graduates repay only when earning above a threshold and there are no consequences for the university if the debt is not paid back. While graduates will take longer to repay their debts than at present, even under the revised bill it will be the government that faces much of the risk of higher student debt levels.

It gets worse. University fees are part of the consumer price index. We estimate that if tertiary education fees double in real terms this would drive the CPI up by 1.4 per cent. Many benefits and other government payments are linked in some way to CPI, so the consequential implications for fiscal outlays are significant and sustained: $2.1 billion a year on the above example. Aged pensioners will receive more pension (which is good) because student fees are going up (which is odd).

The strict meaning of a laydown misere is where the bidder in a card game plans to lose every trick. Is it possible that every player will lose from these reforms? No. We think the Group of Eight will benefit substantially. The ­effective cap on deregulated domestic fees is to be the international student fee less the commonwealth contribution for a domestic student. (This takes some effort to understand.) The Go8 can command much higher international fees, courtesy of decades of taxpayer investment, which a rising Asian middle class is willing to pay. These elite universities will therefore have the headroom now to model where they need to set their international fees to optimise their revenue from whatever student source. Which presumably is why they are advocating the changes so tenaciously.

As former vice-chancellor Don Aitkin said in a blog recently: “Universities would like more money. They have talked about ‘crises’ since 1947, and the crises are always about insufficient funds to do what they want to do.” So it may be wise for the Australian voter not to take at face value everything that vice-chancellors say, individually or collectively (except for one, of course).