Bills Digest No. 39 1999-2000 Higher Education Funding Amendment Bill 1999

Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details

Passage History

Higher Education Funding Amendment Bill 1999

Date Introduced: 30 June 1999

House: House of Representatives

Portfolio: Education, Training and Youth Affairs

Commencement: Royal Assent

Purpose

To amend the Higher Education Funding Act 1988 (the HEFA) to provide new levels of maximum grants available for higher education in the years 1999, 2000 and 2001.

Background

The Higher Education Funding System and Future Policy Directions

Higher education grants are legislated for calendar years within a rolling triennium framework. While there are eighteen types of grants, about 88 per cent of funding is devoted to one program - the operating grants for higher education institutions. There are two sources of funds for this program: the Commonwealth and higher education students. The latter contribute through the Higher Education Contribution Scheme (HECS). Students who elect to defer their HECS payment have it paid by the Commonwealth, which recoups the money through the tax system when the students' income reaches a certain level. Both the Commonwealth's payments on behalf of students and the students' repayments are made through the Higher Education Trust Fund. The Fund can receive and repay funds from Consolidated Revenue as the need arises.

HECS was introduced in 1989 with a single rate of payment for all subjects. It was modified significantly in 1997 with the introduction of differential rates of payment for various subject groupings and the lowering of the repayment threshold. The scheme has played an important role in enabling the expansion of higher education in an era when governments have been reluctant to commit significant additional resources to the sector. This relative importance of HECS in the funding mix will increase as the 1997 changes work their way through the system (see Table 2 below).

Detailed information on higher education programs and their funding is available in the Higher Education Report for the 1999 to 2001 Triennium (March 1999). This is a non-statutory, annual report that provides the only comprehensive source of information on the Commonwealth's higher education programs and their funding. However, funding figures in this report are expressed in specific price levels that are indexed for movements in costs and may thus differ from the amounts ultimately legislated.

The other traditional source of funding data for Commonwealth Government programs, the annual Budget Papers, provide some information on specific budget measures in the higher education area, but no longer contain any useful data on the sector as a whole. The Department has chosen to combine both higher and vocational education into the one 'output group' in the new accrual accounting format, with no individual data for either program. This may be an early indication of future policy directions: the Higher Education Report for the 1999 to 2001 Triennium referred to the blurring of the traditional boundaries between post-compulsory education and stated that the 'pressure on regulatory and financing arrangements to accommodate this blurring, most recently identified in the West report (Higher Education Financing and Policy) will continue to build in the foreseeable future'.(1)

The Government has indicated that it will release a statement on broad funding issues later this year. The Minister, the Hon. Dr David Kemp, has ruled out a voucher model and has commented that the statement will be in part a response to the West report, but that it would not be constrained by it.(2) The West report's recommendations included the following:

• public funding to be directed through the student rather than the institution via the medium of a lifetime individual entitlement of public funding for post secondary education;
• greater flexibility for institutions to set tuition fees and to determine student numbers;
• student access to income contingent loans.

The report recommended that the long term goal - the development of a lifelong learning entitlement - be introduced using an incremental approach based on four stages.(3)

Funding Trends and Emerging Issues

Table 1 indicates that Commonwealth funded student load has grown by 82 per cent since 1983, with around three-quarters of this growth occurring after 1988 (ie. since the establishment of the Unified National System). This expansion has been accompanied by substantial efficiency gains, with the operating grant per actual EFTSU decreasing by 20 per cent. Only half of this decrease occurred in the period following the institutional rationalisations that were imposed with the Unified National System. The table also demonstrates the importance of institutions' enrolments above planned student load as a factor in the growth of the system. These constituted 1.3 per cent of actual load in 1988, 4.9 per cent in 1996 and 10.9 per cent in 1999. The Government has sought to encourage this trend by providing per student payments to institutions for over-enrolments at marginal cost.

Table 1: Commonwealth Resources for Higher Education and Base Operating Grants per Equivalent Full-Time Student Units (EFTSU), Selected Years(4)

Note that monetary amounts are given in constant 1999 price levels and that one EFTSU is broadly equivalent to one full-time student undertaking a normal subject load. Institutions receive operating grants on the basis of planned EFTSU, or student load. This figure does not include full-fee paying students.

Table 2 illustrates the importance of HECS in generating funds for the expansion of the system. In 2001 the real level of the Commonwealth's contribution to operating grants will be about the same as it was in 1983, although planned student load will have increased by 58 per cent. In terms of operating grants per planned EFTSU, the Commonwealth contribution will have declined by 37 per cent between 1983 and 2001. As well as HECS, the introduction of fees for overseas students (1986), postgraduate students (1989) and local undergraduates (1998) has enabled higher education institutions to become much less dependent on Commonwealth grants. In 1981 such grants comprised 89 per cent of university revenue, but by 1997 this proportion had declined to 54 per cent.(5)

Table 2: Base Operating Grant and HECS, Selected Years(6)

With the growth in the HECS stream and the anticipated pickup in the Asian student market, Commonwealth grants (net of HECS) should drop below fifty per cent of university revenue in the current triennium. This will be similar to the proportion that existed before the Commonwealth assumed responsibility for the funding of tertiary education in 1974. For example, in 1971 Commonwealth funding comprised about 48 per cent of university income.(7)

While the sector appears to have adapted to the funding shift from Commonwealth to students and the real decline in per student funding, some issues may need watching. These include:

• Teaching standards. The total student/staff ratio has moved from 13.5 in 1989 to 17.9 in 1998, a 33 per cent increase. A 1996 survey found that only 75 per cent of students were satisfied with the quality of their teaching.(8)
• Progression rates. It was recently reported that an unpublished study of 120 000 students who started an undergraduate degree in 1992 indicated that 40 per cent had not completed their degree after five years and one third had dropped out completely.(9) These figures could have significant implications for admission policies, teaching standards and the ultimate size of the system. They may indicate that less emphasis should be placed on the development of the higher education system, and more on the vocational education and training sector.
• Postgraduate coursework and credentialism. The rapid growth in postgraduate coursework degrees has lead to suggestions that institutions are re-badging undergraduate courses as postgraduate degrees in order to attract the fee revenue. This could suggest that quality assessment procedures in the sector are wanting. The process also contributes to a form of inflation in credentials, or credentialism, whereby graduates are required to obtain more and more degrees in order to compete for jobs that do not really require such qualifications. The real costs to society emerge as credentialism works its way down through the qualification framework, and vocational diplomas and certificates are upgraded to bachelor degrees.
• Maintenance of infrastructure. The roll-in of capital grants into operating grants has provided institutions with more flexibility but it is possible that recurrent funding pressures have resulted in some infrastructure neglect. It was recently reported that the Department of Education, Training and Youth Affairs had written to vice-chancellors seeking confirmation that the capital roll-in component of operating grants was being used to maintain their capital asset base.(10)
• Equity and access. While the numbers of students from equity groups has increased in absolute terms with the growth of the system, their relative representation has declined in some instances. In particular, the proportions of students from rural, isolated and low socio-economic status backgrounds have declined between 1991 and 1997. These three groups, as well as indigenous Australians, remain significantly under-represented in higher education (see Table 4 below).

Policy Commitments and Budget Decisions

This Bill will provide funds to meet a number of the Government's election commitments and budget decisions, although it is not possible to relate the Bill's funding levels to specific policies because grants are expressed as maximum amounts from which allocations are made to individual institutions through Ministerial determinations. Such determinations are disallowable instruments (s.110 of the HEFA) and are reported to Parliament as soon as practicable after the end of each funding year (s.119).

The new funding levels inserted by the Bill will allow the Government to meet the following policy commitments:

• the funding of 60 medical places at James Cook University; and
• an additional $4.9 million (2000) and $9.8 million (2001) for Science Lectureships; and
• an additional $36.8 million in each of 2000 and 2001 for research infrastructure; and
• reductions in 2000 and 2001 to the Higher Education Innovation Program; and
• reductions of $7.8 million (2000) and $10.4 million (2001) as a consequence of the phasing out of the Higher Education Equity Merit Scholarship Scheme (HEEMSS). (11)

Some of these measures are discussed in more detail below.

Phasing Out of the Higher Education Equity Merit Scholarship Scheme

This decision was announced in the 1999-2000 Budget. The HEEMSS was introduced in 1997 to 'further encourage the participation of equity groups'.(12) One thousand new students each year were to be exempted from the HECS charge, building up to a pool of 4000 students by the year 2000. Up to the present time 3000 scholarships have been allocated to universities.

Scholarships are allocated to each university on the basis of the number of Australian undergraduates at each institution. The scholarships are awarded by universities in accordance with guidelines published by DETYA. The guidelines specify that recipients should be commencing students and should belong to one of the equity groups listed in the table below. Table 3 gives a breakdown of students receiving scholarships in 1998. Some students fit into more than one category of disadvantage, so it is not possible to sum the figures. The gender breakdown of 1998 recipients was 34 per cent male, 66 per cent female.

Table 3: HEEMSS Recipients by Category of Disadvantage, 1998(13)

The original criteria for selection were very broad, with institutions only being required to award the scholarships on the basis of merit, with merit being determined by each institution having regard to the academic potential and level of disadvantage of applicants. In the second year of the scheme the Commonwealth also introduced the requirement that universities should award the scholarships to people who had suffered educational and financial disadvantage.

DETYA has conducted an informal survey of university equity officers and states that the main points to arise were as follows:

• 85 per cent of respondents claimed that the scheme was ineffective in attracting people into higher education who might otherwise not undertake university study because young people did not value an exemption from HECS and because the universities did not advertise the scheme properly; and
• there was no agreement on whether the scholarships improved retention; and
• HECS exemptions are more attractive to mature age students and single parents, rather than school leavers; and
• the scheme is administratively expensive for the universities.(14)

The scheme could also be criticised for lack of consistency. Higher education students who seek Commonwealth assistance through the Youth Allowance must undergo a personal and parental income and assets test and, in some cases, a family actual means test. The maximum allowance for an adult student living away from home under the Youth Allowance is $6952 p.a. (not including rent assistance). In contrast, HEEMSS recipients can receive benefits of up to $5682 p.a. (the maximum HECS rate) with minimal or no means testing.

Critics of the decision to abolish the scheme have pointed to the continuing under-representation of various equity groups in higher education. Table 4 below provides some figures on this matter.

Table 4: Equity group participation in higher education, 1991 and 1997(15)

Research Infrastructure Funding Trends

The Government made a commitment in its higher education election policy that expenditure on the Research Infrastructure Program would not fall below 1996 levels. The Research Infrastructure Program has two major components:

• the Research Infrastructure Block Grants Scheme which allocates grants to publicly-funded universities on the basis of their performance in obtaining competitively awarded research funding; and
• the Research Infrastructure Equipment and Facilities Scheme which supports large-scale initiatives, usually involving two or more institutions.

The Commonwealth also supports research infrastructure through the Research Quantum, an element of the Operating Grants received by institutions. The Research Quantum is allocated to universities on the basis of their research performance as measured by the Composite Index, which encompasses both their inputs (success in attracting research grants from government and industry) and outputs (numbers of publications and research degree completions). The following table provides details of research infrastructure funding since 1995.

Table 5: Research Infrastructure Funding Trends, 1995 to 2001(16)

Main Provisions

Schedule 1 amends the HEFA as follows:

• Item 1 amends s.17 to insert new levels of maximum grants for operating purposes for the years 1999, 2000 and 2001.
• Item 2 amends s.20 to insert new levels of maximum grants for superannuation expenses for 2000 and 2001.
• Item 4 amends s.23C to insert new levels of maximum grants for special research assistance and research centres for 1999, 2000 and 2001.
• Item 6 amends s.27A to insert new levels of maximum grants for special capital projects for 2000 and 2001

Endnotes

2. Higher Education Funding Report for the 1999 to 2001 Triennium (1999), pp 23-4.

3. 'Funding overhaul this year', The Australian, 19 May 1999.

4. Learning for Life Final Report. Review of Higher Education Financing and Policy (April 1988).

5. Australian Vice-Chancellors' Committee, Key Statistics (May 1999), Tables A1 and A2. Readers should consult the original tables for detailed notes to the statistics. This publication is available at http://www.avcc.edu.au/avcc/resource/kstats.htm

6. Ibid., Table A11.

7. Ibid., Tables A3 and A4.

8. Kim Jackson. 'Tuition Fees and University Funding', Department of the Parliamentary Library, Research Note No.54 (June 1997).

9. AVCC, Key Statistics, Table B20. Higher Education Funding Report, p 21.

10. 'One-third of students quit', Sydney Morning Herald, 5 June 1999. This DETYA study will be published in the near future.

11. 'Capex threat in pay crisis', The Australian, 4 August 1999.

12. Budget Measures (Budget Paper No.2), pp 64.

13. Higher Education Budget Statement (August 1996), p 16.

14. Department of Education and Youth Affairs, 'Merit Based Equity Scholarships Allocation 1998 Summary of Institutional Arrangements and Outcomes'.

15. Ibid.

16. Department of Education, Training and Youth Affairs, Equity in Higher Education (March 1999), p 57.

17. AVCC, Key Statistics, Table E8.

Contact Officer and Copyright Details

Kim Jackson
18 August 1999
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1999

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Published by the Department of the Parliamentary Library, 1999.

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