AFR: A Better Path to University Reform

Supporters of the federal government’s bill to deregulate university fees are branding opponents a bunch of political opportunists. Reform, according to the government and its allies in the Group of Eight sandstone universities, necessarily entails allowing universities to set their own fees; no alternative pathway to reform exists.

The government insists that Labor, the Greens and Independents have a moral obligation to help it break its election promise to not increase university fees. Its legislation is a budget savings measure dressed up as reform. Critics of Senators opposing the legislation assert that the uncapping of student places by the previous government has caused sharp, ongoing increases in demand. Yet the evidence in 2013 was of a slowing in demand growth as the pool of unmet demand being tapped by the 2011 reforms – largely comprising mature-age students – was being depleted. Now we are expected to believe that a new pool of unmet demand has been found and is putting unbearable strains on the system that can be relieved only through total fee deregulation.

Taxpayers have contributed heavily over many decades towards establishing the deserved reputations of our sandstone universities. These universities’ records of excellence, together with first-class facilities and favoured geographical locations, have generated monopoly rents over the newer universities in outer urban and regional Australia. Now the sandstone universities want to privatise those rents and use the proceeds as they see fit. But it doesn’t follow that what is good for universities as the producers of higher education is good for students as consumers.

All but one of the non-sandstone universities supports full fee deregulation. For them the only alternative on the table is budget cuts without compensating fee rises. As the University of Canberra’s vice-chancellor, Stephen Parker, points out, when the previous government announced a 2 per cent efficiency dividend in 2013, Universities Australia ran a vociferous campaign of opposition, but has willingly signed up to a 20 per cent budget cut, with the shortfall in university budgets and potentially much more to be funded by students.

Australia is desperately searching for new sources of productivity growth in the aftermath of the mining boom. Producing more creative, skilled university graduates is a sure-fire source of productivity growth. And it contributes to community civility and culture. Yet for university degrees we are being asked to suspend the law of demand – to believe that when the price of degrees increases demand for them does not fall. Income-contingent student loans to fund university degrees do not render students indifferent to price rises. Nor should it be assumed that fee hikes would have no effect on default rates, including the prospect of a permanent brain drain as graduates moved abroad to evade repaying their fees.

For such a fundamental proposed change to Australia’s higher education system a thorough, independent inquiry to assess these likely impacts is warranted. Its terms of reference should not be restricted to the government’s policy but should allow consideration of other possible reforms to ensure the higher education system is financially sustainable while producing high-quality graduates. Vice-chancellors have risen to their positions on the basis of their reputations for academic rigour and inquiry. They should not be opposed to such an inquiry.

As for short-term budgetary impacts of delay, the compromises the government has made to secure the support of particular independent Senators have eliminated most of the early budget savings anyway – down from $3.9 billion to just $642 million.  The remaining shortfall could be more than met by scrapping the government’s extravagant paid parental leave scheme or its wasteful direct action plan, or by insisting that multinational profit-shifting companies pay their fair share of tax.

The inquiry should include forecasts of the remaining pool of unmet demand from the 2011 uncapping of university places, which appears to be driving this budget savings measure. The government could then take its response to the inquiry to the next election, obliging the opposition to present its alternative higher education policy to the people at the same time.

Craig Emerson is managing director of Craig Emerson Economics and was higher education minister in the Gillard government.