Education Higher Education

Budget Review 2009-10 Index

Budget 2009 10: Education

Higher Education

Dr Coral Dow

In other years the $5.7 billion commitment to higher education, innovation and research would be a Budget centrepiece but in 2009-10 it is overshadowed by larger commitments in other portfolios and by the debate on appropriate debt levels, budget deficits and the economic outlook. It should be noted that less than half of the additional funding ($2.2 billion) will provide additional recurrent funding for university teaching, learning and research. The remainder will fund education and research infrastructure (including infrastructure in the vocational education and training sector) through funding from the Education Investment Fund (EIF) ($2.1 billion) and the Super Science measure in the Innovation, Industry, Science and Research portfolio ($1.1 billion).[1]

This brief focuses on the teaching and learning components of the budget measures as university research functions have moved to the Innovation, Industry, Science and Research portfolio. Significant changes to student income support are addressed in the Welfare payments section of this Budget review.

In contrast to some of the larger budget commitments, the higher education budget is accompanied by significant structural change and policy initiatives which implement the government’s response to the recommendations in the Review of Australian Higher Education chaired by Professor Denise Bradley.[2] The policy reform is based on a number of key principles including:

• the importance of quality university education to the community and the individual
• broadening access to higher education (especially groups traditionally under represented), and
• basing access on merit not the ability to pay. 

The Government has adopted two key targets recommended by the Bradley review. First, a national target of at least 40 per cent of 25 to 34-year-olds having attained a qualification at bachelor level or above by 2025 (Bradley recommended achieving the target by 2020). Second, that by 2020, 20 per cent of university enrolments at undergraduate level are for people from low socio-economic status (SES) backgrounds. The budget measures are targeted at realising these reforms through increased funding to student places, student income support, scholarships, institutional performance targets, and a new quality and regulatory agency.

Demand-driven funding

The Government has accepted the Bradley review’s recommendation to introduce an uncapped student demand-driven system for the funding of university undergraduate places. This is a major policy change to the allocation and funding of student places which to date have been funded through agreements with universities on a set or capped number of places. Over enrolments have been penalised and universities have resorted to uncapped overseas and domestic full fee places to meet demand and provide revenue.[3]

A student-centred (or student demand) system where funding follows the student is widely referred to as a ‘voucher’ system. All eligible students would receive an entitlement to a Commonwealth subsidised place and universities would decide their own entry standards, enrolment targets and discipline mixes. Proponents argue there are significant advantages to individuals and institutions. A demand driven system is predicted to increase participation because students will have a better chance of gaining their first-preference course and thus a greater incentive to enrol. In recent years unmet demand has been falling but in 2008, 61 per cent of applicants did not receive a first preference offer. Academic Andrew Norton in his submission to the Bradley review argued that this has costs for both individuals and the community: ‘About a quarter of students who do receive an offer of a university place reject it. This is an under-studied group, but presumably disappointment at the offer actually received is a factor. The academic and career potential of these applicants is lost or delayed’.[4]

Proponents claim the deregulation of student places will give universities greater flexibility, incentives to expand and produce a more competitive system.[5] The Bradley review argued:

A demand-driven system could see a shift of students and funding toward those institutions that wish to grow and that can attract increased numbers of students. This is precisely what is intended: to allow funding to shift between institutions in response to student demand and to create a system in which each institution’s funding is determined dynamically by the quality of its performance rather than by an historically-based system of centrally-planned student load allocations.[6]

A significant issue with deregulation is the lack of protection to low demand universities leading to a furthering of the divide between elite universities and others, sometimes referred to as ‘third tier’ universities. The impact may be particularly hard on regional universities, some of which are now struggling to fill places. Australian Catholic University vice-chancellor Professor Greg Craven said vouchers would encourage predatory recruitment: ‘Every university will eye off its neighbour to figure out what it might want. There are a lot of quite vulnerable universities that it wouldn’t take much to knock off balance–I’m talking particularly about the regionals’.[7] Professor Bradley is reported as acknowledging this possibility for both regional and ‘third tier’ providers:

We know some of these recommendations will be quite difficult for newer institutions. But it is 20 years since they were formed. Either they are viable in a more competitive arena, or they’re not. There will be winners and losers if a deregulated system is put in place. But why would you force students to go to places that are losing. We need to shift our mind away from protecting institutions to protecting students.[8]

However Melbourne University academic, Simon Marginson, predicts elite universities will not take places from those universities currently in less demand. Instead he predicts elite universities will look to their large overseas enrolments to maintain funding, and that ‘less renowned universities would take up most of the increase in domestic student load’.[9]

A further criticism is that concentration on high demand and lucrative courses may result in a more ‘homogenised’ system producing a mismatch between what students demand and what the economy needs. This could be further exacerbated by universities concentrating on high demand/low cost courses, for example law and commerce at the expense of high cost courses such as engineering and science.

Other issues of a student demand-driven system involve the appropriate way to measure a student’s ability to undertake and complete a degree and the possibility that universities may lower standards and entry scores to attract students and meet performance targets.

The student-centred system is estimated to cost $490.6 million over the next four years to fund a target of an additional 50 000 places by 2013.[10] However the new system will not be introduced until 2012. As an interim measure universities will be permitted to over enrol by ten per cent from 2010 with payments for over enrolments made in the relevant year and adjustments for under enrolments made in the following year. The Government estimates over enrolments will cost $36.4 million in 2010 and $74.3 million in 2011. The next two years will provide evidence of the likely effects of the student demand system. A major factor in how the system will operate is the Government’s reluctance to allow fee deregulation. Combined with no increase in funding per student place and historically imbalanced funding per discipline, universities will continue to rely on funding from overseas student fees and may focus on those courses which are less expensive to provide.[11]

Non funded Government commitments include two reviews: a review of the regional loading component of the Commonwealth Grants Scheme which provides extra funding towards the added costs of regional provision and a review of base funding for teaching and learning. Although the Government did not accept the Bradley review recommendation to increase the base funding for teaching and learning by 10 per cent from 2010, it has promised an independent review of base funding and discipline clusters costs which will report in 2011.[12]

Some of the impacts of the ‘voucher’ system will be addressed through the Government’s new ‘mission-based compacts’. Little detail is available on the compacts other than they will be in two parts: one for teaching and one research and they will define ‘targets for improvement and reform which will trigger reward payments’.[13] Targets will relate to quality, attainment and participation by students from under-represented groups. Consultations on the compacts will take place in 2009 and will include the issue of appropriate indicators to measure an institution’s performance.  

The Government has funded a number of measures to assist in the implementation of the new system. These measures include $402 million in structural adjustment funding, $206.4 million for institutional performance targets, and $436.9 million to support increased participation for low socio-economic status students and $57 million for a new regulatory and quality assurance body: the Tertiary Education Quality and Standards Agency (TEQSA).

Structural Adjustment Fund

Sixty-four million dollars in the existing Diversity and Structural Adjustment Fund will be redirected to establish the Structural Adjustment Fund at a cost of $202.1 million. A further $200 million will be added for capital components and will be funded by Round 3 (2009–10) allocations from the EIF. Funding will be available to institutions, both regional and metropolitan, to ‘develop diverse missions’, ‘consider their strategic direction’ and focus on ‘achieving long-term sustainability’.[14] No further details are provided, but the Government is encouraging collaborative efforts, including those between universities and vocational education and training providers, and through possible mergers. Two million dollars is allocated to a feasibility study for a possible merger of regional providers, Charles Sturt University and Southern Cross University.

Performance funding

Three hundred and twenty-three million dollars will be redirected from the existing Learning and Teaching Performance Fund to fund new performance targets agreed to in compacts. Performance funding of $206.4 million over two years will commence with the new system in 2012. In 2011 transitional payments will be made for agreeing to the first year of institutional targets but will be paid in 2012. The remaining funds from the existing Learning and Teaching Performance Fund will be directed to conditional funding under the revised indexation scheme (discussed below). The Government states that unlike the previous Teaching and Performance Fund, the new performance funding ‘will not be distributed on the basis of relative performance to allow all institutions to be rewarded for achieving improvements’.[15] TEQSA will assess if targets have been achieved.

Equity funding

Four hundred and thirty-seven million dollars over four years (calculated as a percentage of teaching and learning grants) will reward universities that attract more students from low SES backgrounds, that assist those students once enrolled and to fund partnerships with schools and VET providers that will encourage retention of low SES students in pre-tertiary education. This is an important measure in the Government’s aim to boost participation of low SES students to 20 per cent of enrolments by 2020.[16] Academic Trevor Gale welcomes the new financial loading for achieving equity targets but suggests that there should also be direct penalties. He fears universities in high demand may meet their equity targets by:

Expanding their overall student intake and in the process effectively shift the “equity load” from their neighbouring institutions. Such a strategy would potentially enable them to meet their institutional equity targets, at least in the short term, but it is unlikely to do much for the sector’s target as a whole. And it will place affected neighbouring institutions in the position of having to attract and enrol other potentially less-prepared students in a context where the current demand for higher education is not that much greater than the current supply. In effect, the hard work of encouraging Australians currently uninterested in attending university will be left to these less well-positioned institutions.[17]

New indexation arrangements

A major concern of the higher education sector has been the indexation formula used for teaching and research grants and student payments. The present formula was introduced in 1997 and, despite a review in 2005, has remained unchanged. Universities have lobbied for a new index in which the salary component of the index is changed from the present safety net adjustment to the Labour Force Index (Education), previously known as the Wage Cost Index (Education).[18]

In its submission to the Bradley review Universities Australia argued that ‘since 1989 the gap between actual and CPI-adjusted base funding has grown to around $1.6 billion and for wage-cost adjusted funding around $3.1 billion’.[19] Another estimate suggested that the wage component of the indexation formula had cost almost $3 billion in Commonwealth funding between 1997 and 2003.[20]

The Bradley review recommended that the ‘Government maintain the future value of increased base funding for higher education by an indexation formula that is based on 90 per cent of the Labour Price Index (Professional) plus the Consumer Price Index with weightings of 75 per cent and 25 per cent respectively’ and estimated this would cost $1.14 billion over the first four years.[21] The Government has promised the Safety Net Adjustment (SNA) index will be replaced with a wage price index discounted by 10 per cent that is comparable to the Labour Price Index (Professional). However the Government has committed less than Bradley estimated—$578 million over four years—to fund the revised indexation, largely because the new indexation will be implemented from 2012.

Conclusion

The budget has been widely welcomed by the higher education sector. In particular the sector has welcomed:

• the Government’s support for a majority of the Bradley review’s recommendations
• commitment to an improved indexation rate
• significant infrastructure spending from the EIF
• reform of student income support, and
• the move to full funding of research (funded from the innovation, Industry, Science and Research portfolio).[22]

These measures will assist in improving the balance between public and private funding of the sector which since 1996 has seen a decrease in public funding and an increase in revenue from student fees.[23]

However concerns have been raised: some regarding funding commitments and others related to the structural reform of the sector. Criticisms centre on the Government’s rejection of the 10 per cent increase in the base funding rate of student places recommended by the Bradley review, the failure to fully fund the reforms at the rates recommended by the review—some estimate that the funding commitment is as low as 30 per cent of the figure recommended in the review—and the delayed start to increased funding until 2012. As Simon Marginson describes it the ‘budget is a feast of deferred gratification’.[24]

The budget has stimulated discussion of the policy reform issues and the ability to meet long-term targets. Demographer, Bob Birrell, claims Australia would need an additional 20 universities to meet the participation targets recommended by the review.[25] Professor Bradley is reported as rejecting this view and instead recommends collaboration between providers to solve infrastructure and program delivery needs.[26] The review recommended ‘a more coherent approach to tertiary education provision’ including ‘flexible and collaborative delivery arrangements in partnerships with other providers such as TAFE’.[27] The Government has made no such commitment other than in encouraging funding for collaboration through the Structural Adjustment Fund. The student demand centred system will not be extended to TAFEs despite a number of them offering degree courses and a significant number providing degrees as third party providers to universities.[28]

Although there has been little support for Bob Birrell’s claim for new universities there is an acknowledged need for infrastructure expansion. To date the EIF has been viewed as the source for funds but the Budget has thrown some doubt on the EIF’s ability to fund the expected demands. The 2008 budget promise to transfer $2.5 billion to the EIF will not occur if the proposals in the Nation-building Funds Amendment Bill 2009 are legislated. The Nation-building Funds Amendment Bill seeks to prevent the $2.5 billion transfer and proposes using it instead to help fund the Clean Energy Initiative announced in the 2009–10 Budget.[29]

At 31 March 2009, the amount in the EIF was $6.5 billion. Four billion dollars of EIF funding has been committed in the 2009–10 budget and in the nation-building package announced by the Prime Minister on 12 December 2008. The EIF balance will be $2.4 billion plus investment earnings.[30] Dr Glenn Withers of Universities Australia criticised the decision to divert funds from the EIF to the Clean Energy Initiative saying the sector would need extra infrastructure funds to meet the expansion in student numbers. He is reported as saying that little of the money for the Clean Energy Initiative would go towards universities, vocational education and training or research institutes.[31]

[1].    Australian Government, ‘Summary of measures’, Universities, innovation and education revolution, Commonwealth of Australia, Canberra, May 2009,  p.19

[2].    Review of Australian Higher Education, Final report, (Professor Bradley, Chairperson), Department of Education, Employment and Workplace Relations, Canberra, December 2008, viewed 14 May 2009, http://www.deewr.gov.au/HigherEducation/Review/Pages/
ReviewofAustralianHigherEducationReport.aspx  For a list of the 46 recommendations made by the Bradley review and the government’s response see: Transforming Australia’s higher education system, Canberra, 2009, Appendix 3, Bradley recommendations table, pp 57–65, viewed 14 May 2009, http://www.deewr.gov.au/HigherEducation/Documents/PDF/Additional%20Report%20-%20Transforming%20Aus%20Higher%20ED_webaw.pdf 

[3].    In 2008 the government announced the phasing out of domestic full fee places at public universities from 2009. Overseas enrolments are not capped. In 2007 15 per cent of total university revenue was from fee paying overseas students.

[4].    A Norton, Submission no. 91, Review of Australian Higher Education, p. 5, viewed 18 May 2009, http://www.deewr.gov.au/HigherEducation/Review/Documents/Submissions2008/091ANorton.pdf

[5].    A Trounson and B Lane, ‘Vouchers can boost numbers’, The Australian, 17 December, 2008, viewed 18 May 2009, http://parlinfo.aph.gov.au/parlInfo/search/display/
display.w3p;query=Id%3A%22media%2Fpressclp%2FM9ES6%22

[6].    Review of Australian Higher Education, Final report, p. 156.

[7].    J Ross, ‘It’s not just a matter of entitlement’, Campus review, 22 December 2008, viewed 18 May 2009,  http://www.campusreview.com.au/pages/section/article.php?s=News&idArticle=6159

[8].    J Ross,

[9].    A Trounson and B Lane, ‘Euphoria recedes after reality check’, The Australian, 20 May 2009.

[10]. Australian Government, Budget measures: budget paper no.2: 2009–10, Commonwealth of Australia, Canberra, 2009, p. 144; J Gillard (Minister for Education), Student demand to drive university funding, media release, Canberra, 12 May 2009.

[11]. For an analysis of per student funding rates see: A Norton, ‘The gap between us’, The Australian, 20 May 2009.

[12]. Australian Government, Student centred funding system, Canberra, 2009, viewed 20 May 2009, http://www.deewr.gov.au/HigherEducation/Documents/PDF/
Pages%20from%20A09-303%20Budget%20Fact%20Sheets-3_webaw.pdf

[13]. Transforming Australia’s higher education system, p. 47.

[14]. Transforming Australia’s higher education system, p. 40.

[15]. Transforming Australia’s higher education system, p. 33.

[16]. Since 1996 the rate has remained unchanged on 15 per cent.

[17]. T Gale, ‘Walking the talk’, Campus review, 18 May 2009, viewed 19 May 2009, http://www.campusreview.com.au/pages/section/article.php?s=Comment&idArticle=7296

[18]. See: Australian Vice-Chancellors Committee (AVCC),
Laying the Foundations: AVCC submission to the
Review of the Indexation of University Funding, AVCC, Canberra, 2004, viewed 20 May 2009,
http://www.universitiesaustralia.edu.au/documents/
publications/policy/submissions/IndexationSubmission.pdf

[19]. Universities Australia, Universities Australia submission to Review of Australian Higher Education, Universities Australia, Canberra, July 2008, p. 16, viewed 21 May 2009,
http://www.universitiesaustralia.edu.au/documents/publications/policy/
submissions/Bradley-Submission-July2008.pdf

[20]. Group of Eight, Position paper on the indexation of university grants, Group of Eight, Canberra, December 2004.

[21]. Review of Australian Higher Education, Final report, pp 153–154

[22]. Universities Australia, Universities Australia applauds Federal Budget for higher education, research and innovation media release, Canberra, 12 May 2009, viewed 20 May 2009,
http://www.universitiesaustralia.edu.au/documents/news/
media_releases/2009/uniaus_media_05_09.pdf Group of Eight, Visionary road taken to university reform, media release, Canberra, 12 May 2009, viewed 20 May 2009, http://www.go8.edu.au/index.php?option=com_content&task=view&id=235&Itemid=180

[23]. See: ‘University revenue and expenses by main source’ Universities Australia, Funding and expenditurewebsite: http://www.universitiesaustralia.edu.au/content.asp?page=/publications/stats/fexp.htm

[24]. S Marginson, ‘A touch of the blues’, The Australian, 20 May 2009, viewed 20 May 2009 http://parlinfo.aph.gov.au/parlInfo/search/display/
display.w3p;query=Id%3A%22media%2Fpressclp%2F80MT6%22; see also: A Trounson and B Lane, ‘Euphoria recedes after reality check’, The Australian, 20 May 2009, viewed 20 May 2009,
http://parlinfo/parlInfo/download/media/pressclp/
8ZLT6/upload_binary/8zlt60.pdf;fileType=application/pdf#search=%22australian%22 ; A Norton, ‘The gap between us’, The Australian, 20 May 2009, viewed 20 May 2009
http://parlinfo.aph.gov.au/parlInfo/search/display/
display.w3p;query=Id%3A%22media%2Fpressclp%2FYZLT6%22 ; J Ross, ‘The Pollyanna principle’, Campus review, 18 May 2009; A Norton, ‘A 5/10 budget for undergraduate teaching’, Andrew Norton website, viewed 20 May 2009, http://andrewnorton.info/2009/05/a-510-budget-for-undergraduate-teaching/ 

[25]. B Birrell and D Edwards, ‘The Bradley Review and access to higher education in Australia’, Australian universities review, vol. 51, no. 1, 2009, pp 4–13.

[26]. A Trounson, ‘Flexibility, not bricks and mortar, the key’, The Australian, 11 March 2009.

[27]. Review of Australian Higher Education, Final report, recommendation 16, Chapter 3.7.

[28]. For example: In 2007, 286 Charles Sturt University students were enrolled in nursing at Holmesglen TAFE. See also: J Ross, ‘No place for TAFE in student-centred higher ed?’, Campus review, 18 May 2009.

[29]. A Albanese, ‘Second reading speech: Nation-building Funds Amendment Bill 2009’, House of Representatives, Debates (Proof), 12 May 2009, viewed 22 May 2009, and Nation-building Funds Amendment Bill 2009, Explanatory Memorandum, p. 2, viewed 21 May 2009, http://parlinfo.aph.gov.au/parlInfo/download/legislation/
ems/r4115_ems_95f1d64f-f2d5-494d-951a-86552f1dd6df/upload_pdf/329304.pdf;fileType=application%2Fpdf#search=%22nation-building%20funds%20amendment%20bill%202009%22

[30]. Of the $4.1 billion, the 2009–10 Budget proposes spending of $2.985 billion over the four years 2009–10 to 2012–13, see  Transforming Australia’s Higher education system, p. 50. 

[31]. A Symonds, ‘Education fund faces shortfall’, Australian financial review, 20 May 2009, p. 10.