You can tell an airline is in trouble when its management says it can't afford to buy a fleet of modern new jets that are more fuel efficient and comfortable for passengers. The company will quickly lose competitiveness against forward-looking rivals that are willing to invest money to make money. So it is with education. Australians are being told the federal government cannot afford the cost of a needs-based school funding system and of a demand-driven higher education system – ensuring as a nation we lose competitiveness against our forward-looking rivals in Asia and beyond. Yet the government seems willing to spare no expense in keeping almost all existing tax shelters wide open.
After the previous Labor government increased university funding from $8 billion in 2007 to $14 billion in 2013, Universities Australia attacked the Gillard government's modest decision to reduce the rate of growth in university grants by 2 per cent to help pay for the needs-based school funding system. Yet under the Abbott government, Universities Australia readily signed up for a 20 per cent cut in federal grants in exchange for fully deregulated fees.
When the plan to fleece the students went pear-shaped at the hands of the Senate, the new chair of Universities Australia, Barney Glover, reversed the organisation's support for full fee deregulation. And Professor Ian Jacobs, the new vice-chancellor of the University of New South Wales – which had been one of the staunchest advocates of full fee deregulation – declared there had been no funding crisis in the first place and no case for deregulation.
'MOSCOW ON THE MOLONGLO'
The finance department had argued for the 2013 decision to reduce the rate of growth of university grants out of concern that the cost of a demand-driven system that Gillard introduced from 2010 was spiralling out of control. Under the previous command-and-control system, which Professor Max Corden dubbed "Moscow on the Molonglo," Canberra set the number of places in each course in each university each year. Gillard's new demand-driven system enabled people to go to university who otherwise would have missed out. Predictably, universities tapped a well of unmet demand in the early years of the new system, resulting in a surge in enrolments. These were typically people in their thirties who had not gained entry under the old soviet-style system.
As higher education minister, I argued to the finance department that the sharp trajectory of enrolments – and hence, of budget contributions – would level off as the unmet demand was exhausted. Early this year the verdict was in: new enrolments flat-lined in 2015 which, as Universities Australia points out, suggests that the initial surge of unmet demand for a university education has been steadily absorbed in the first few years of the shift to the demand-driven system.
Yet critics want enrolments further reduced, complaining that students with low tertiary entrance scores should not be allowed entry. Why not? Surely it's the quality of the student output of universities that matters; not flawed estimates of the quality of high-school student inputs. Gillard's demand-driven system is allowing more students from disadvantaged backgrounds to go to university, a goal that has eluded governments since the Whitlam years. But elitists want a return to the old soviet system to keep the riff-raff out. And professional associations – which run Australia's tightest closed-shop unions – insist on strict limits to course numbers in order to protect their incomes, all in the name of quality, of course.
Future job creation in advanced countries will be at the highly-skilled end and in low-paid personal services. Not only can Australia afford a needs-based school funding system and a demand-driven university system, they are essential to the nation's future in the digital age and in the coming age of robotics and genetic engineering.
In a seminal study, Dr Andrew Leigh, then a Professor at the Australian National University and now shadow assistant treasurer, estimated very high returns from simply completing high school compared with dropping out early, and surprisingly high returns from just completing a three-year university degree. Dr Leigh's results, supported by more recent OECD analysis, confirm the potential of the needs-based school-funding scheme and of the demand-driven university scheme. Both should be implemented as efficiently as possible, but cutting funding because the government lacks the nerve to upset its base by closing down unsustainable tax shelters would be as dumb as flying around with an outmoded airline fleet against the toughest competition in the world.