Below is a joint submission to the Senate Inquiry into the principles of the Higher Education and Research Reform Bill 2014, and related matters written by Ben Phillips from NATSEM and myself. You can also view it by clicking here.


In this submission the authors address only one of the specific matters listed by the Committee: namely “alternatives to deregulation in order to maintain a sustainable higher education system”.

In our recent submission to the Senate Education and Employment Legislation Committee, on the revised provisions in the Bill, we make the point that the Bill as revised is worse for the taxpayer and the student than the status quo. Accordingly, in this submission the status quo features as the main “alternative”, along with some variants.

In summary, we come to the view that “the problem” for which fee deregulation is said to be the answer has been, at the least, exaggerated; that arguably it will diminish as a problem because higher education on current settings will consume a decreasing proportion of GDP; that there may be a case for some adjustments to the current settings – including being honest with the voter and expecting the tax-payer contribution to increase – but that policy like this cannot be made on the run and within the timeframes that have been imposed on this process.

The Status Quo

Most advocates of the reforms have sought to argue that the status quo is a “problem”, and many go on to argue for the specific virtues of deregulation and an increase in market forces in higher education.

Insofar as international benchmarks are concerned, one can argue that the glass is half full or half empty.

Up until the uncapping of student places in Australia, higher education revenue as a proportion of GDP has tended to be at the OECD average, and higher than the EU average, although the contribution expected from students to this revenue has been considerably higher than the OECD average.

Australia has tended to be in a cluster with other social democracies such as Finland, Switzerland, Belgium and France. The uncapping of places since 2012 will have increased Australia’s relative proportion, and the comparative data have not yet caught up, but we doubt that the increase will take us towards the top, for example where Canada sits.

The modern level of investment in higher education in Australia has produced a sector which has been ranked highly. If one takes the Academic World Ranking of Universities (AWRU) as a measure, Australia had 14 universities in the top 500 in 2004 but by 2014 it had 19. If one scales for the size of population or for GDP, Australia’s performance looks even better. In 2014 we would have been 4th in the world per 10 million of population and 5th per million US dollars of GDP.

If one takes as a measure the attractiveness of Australian universities to international students then Australia is similarly successful. In fact, if one discounts Switzerland because of its very small local population, scaled for size Australia would be first in the world.

There is no particular prospect of comparator OECD countries investing in their universities at markedly higher rates so as to leave Australia behind: so there does not seem to be a competitive threat looming from that direction. There is, however, a prospect of some large developing nations doing this. But if, say, China, with a huge population, wishes to focus on a small number of universities and help them move to the top, we would question whether it is sensible for Australian student debtors and the taxpayer to fund the defence of our relative position in rankings, when the absolute quality of Australia’s institutions is not going down.

In addition, as we will argue below, higher education revenue as a proportion of GDP will be falling not rising over the coming decades because of the ageing of Australia’s population, so we do not subscribe to the idea that there is a problem of cost pressures building up; or at least not a problem for which higher education should be made to suffer.

We conclude that the sense of there being an urgent “problem” may have been confected, but there is no doubt that uncapping places has been expensive, and more so than had been anticipated. Perhaps the consequences of uncapping are where one should start for other alternatives.

The Status Quo Adjusted

This heading is short-hand only for the idea that the current system is basically workable but needs some updating to reflect the fiscal situation and expansion of the sector.

If expansion of the sector has been more costly than expected, it is open to Parliament to increase student contribution amounts and reduce Commonwealth grants correspondingly or partially. It is broadly accepted that higher education produces public good as well as private gain, but no one can say with confidence where around the middle, the split really should be. At present students pay on average about 45% of the cost of their education (with wide disparities within the average) but the dividing line could be moved.

It is likely, however, that this would push us towards the bottom of the OECD in terms of the proportion of cost borne by the public. In other words, Australian graduates would be paying proportionately even more than their OECD counterparts. And it would come at a time when relative graduate starting salaries and employment rates have dropped considerably. In 2001, the median starting salary for a new graduate under 25 was 85.8% of average male earnings. In 2014 it was 74%. In the same period, graduates in full-time employment four months after completing had dropped from 83.6% to 68.1%.

The Status Quo Improved

One could however be more assertive about the benefits of higher education to society and the individual and make the case for the taxpayer providing more: in other words, being honest with the voter. Important background to this comes from Intergenerational Report data. A new report is imminent but on the 2010 data higher education will shrink as a share of GDP by 2050, from 0.6% to 0.5%. An important driver of this is demography. The population is growing, GDP will grow, but the cohort of typical university age people is not growing as fast. Put differently, the outlays are levelling off in relative terms and the headroom for increased resourcing is being created.

Another perspective is to look at past and future growth rates of undergraduate students. Between 1991-2001 places grew by 19%. Between 2002-2013 they grew by 29%. But the estimate for the decade 2013-2023 is growth of 11%. Due to demographic factors, and possibly saturation of the population likely to benefit from higher education, the big growth periods are behind us.

Limited Re-capping

Alternatively, or in addition, some revisiting of uncapped places might be warranted, bearing in mind emerging data about attrition rates amongst lower ATAR entrants.

In 2009, 12% of offers were to students with ATARs below 50. In 2014, 40.6% of offers were to students in this range. According to Department of Education completion rate data, 49% of students admitted with ATARs of below 50 in 2005 had not completed by the end of 2012, whereas only 6.2% of those with ATARs between 95 and 100 had failed to complete. An attrition rate of nearly 50% for those in the lower half of the ATAR range is arguably unacceptable, from various viewpoints, including the fiscal one.

One could have a system of uncapped places, and therefore “place competition” between providers, down to a certain ATAR or equivalent, but a different approach below that level. If there were penalties for high attrition rates this could also make providers wary of expanding further below the threshold. If there were quotas of places for low ATAR students, perhaps linked to courses in areas of expected workforce shortage, this could provide the basis of rationing places to the group at highest risk of not completing. This kind of policy cannot be developed on the run, but has more potential merit, in our submission, than the provisions in the Bill. Whilst it is fashionable to say that governments do not get it right when they try to predict workforce needs, we do not accept that it is a wholly flawed goal. Who could doubt, for example, that with an ageing population we will need more health workers in the future?

More Radical Alternatives

A range of more radical alternatives could be explored systematically, including allowing some public providers to opt out of the Commonwealth Grants Scheme for coursework offerings, and moving to unregulated fees on what is currently FEE-HELP. The taxpayer contributions could then go further amongst other universities which wish to stay in the public system.

Restructuring through mergers and clustering in mini-systems could be explored: there are numerous examples overseas, including merging research universities into power-houses.

Shared services and common administrative platforms between universities could be considered, so that competition is based on academic performance rather than systems and processes.

Whether the status quo would look too bad at the end of all this examination would be an interesting question.