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Will the new Future Drought Fund leave the Education Investment Fund high and dry?


On 26 October, the Coalition Government announced it would create a new Future Drought Fund, with initial investment to come from transferring the $3.9 billion uncommitted balance of the Building Australia Fund, one of the Nation-building Funds originally created by the Gillard Labor Government. The announcement has raised the question of the status of the other remaining Nation-building Fund, the Education Investment Fund (EIF). 

This FlagPost provides an overview of the EIF to assist in understanding its current status. It updates some of the information provided in the Medicare Levy Amendment (National Disability Insurance Scheme Funding) Bill 2017 [and] related Bills Bills Digest.

What is the Education Investment Fund?

The EIF was established on 1 January 2009 by section 131 of the Nation-building Funds Act 2008 (NBF Act) to provide dedicated ongoing capital funding for tertiary education and research infrastructure.

Designed as an $11 billion fund, and managed as a Special Account, the EIF replaced the similar Higher Education Endowment Fund (HEEF), which was established by the Howard Government. Initial funding was provided from the $6.5 billion HEEF balance, with ongoing funding to come from Commonwealth budget surpluses and Fund investments overseen by the Future Fund Board of Guardians.

Tertiary education institutions have long struggled to maintain and upgrade facilities on base funding alone. This was recognised as far back as the 1957 recommendations of the Murray Committee under Prime Minister Menzies, which led to the introduction of dedicated capital funding from the Commonwealth. The HEEF and EIF attempted to resolve this issue through large-scale funding which would have, according to then Treasurer Peter Costello in his 2007–08 Budget speech,put our Institutes of Higher Learning on a secure footing forever’.

The EIF provided $4.2 billion for infrastructure projects through competitive funding rounds held between 2008 and 2011. Unlike many other tertiary education infrastructure programs, funding was not limited to research infrastructure, but instead funded a wide range of investments, including the transformation of Central Queensland University into a dual sector institution, a Joint Health Education Facility at Port Macquarie, the Australian Centre for Indigenous Knowledge and Education at Charles Darwin University, and Australia’s involvement in the Giant Magellan Telescope project.

Background to the proposed abolition of the Education Investment Fund

The abolition of the EIF has been government policy since 2014. The report of the 2014 National Commission of Audit suggested ‘the Government may wish to re-examine the need for the Nation-building funds in their current form’, because:

[t]he current arrangements for the three Nation-building Funds, with funding only able to be directed to capital expenditure, leads to an undue emphasis on ‘ribbon cutting’ opportunities generally associated with new projects, at the expense of periodic maintenance and of small-scale improvements that could postpone or even avoid the need for costly asset expansions.

In the subsequent 2014–15 Budget (pp. 114–115), the Government announced that the EIF would be abolished, however the legislation to give effect to this announcement lapsed when the Parliament was prorogued on 15 April 2016.

What does the evidence say about the effectiveness of the Education Investment Fund?

Many universities reported in submissions to the Senate Standing Committee on Economics inquiry into the NDIS funding Bills that EIF projects yield substantial benefits.

However, the results of reviews related to tertiary education infrastructure have been mixed. In September 2015, the final report of the Research Infrastructure Review suggested that funding should be used for research infrastructure. Although this would have represented a change in scope (in that learning and teaching facilities would not be funded), the report of the Research Infrastructure Review argued it would still be consistent with the original intention of the EIF to support national productivity through investment in tertiary education and research infrastructure.

Then, in 2016, the final report of the Higher Education Infrastructure Working Group found that institutions were largely in a good financial position to fund infrastructure from operating surpluses. While the report raised concerns about the minority of smaller institutions that relied more heavily on capital grants, and pointed to the leveraging benefits of the Commonwealth funding, the Working Group concluded that this did not necessarily provide a clear justification for the continuation of such a large-scale sector-specific infrastructure program. 

What is the current status of the Education Investment Fund?

The second piece of legislation proposing to abolish the EIF, the Nation-building Funds Repeal (National Disability Insurance Scheme Funding) Bill 2017, would do so with the intention of transferring the uncommitted balance to the (yet to be created) National Disability Insurance Scheme (NDIS) Savings Fund Special Account.

However, this Bill is still before Parliament as part of a package of 11 Bills, including the Medicare Levy Amendment (National Disability Insurance Scheme Funding) Bill 2017, which the Government has announced will no longer go ahead.

As such, the NBF Act has not been repealed or amended to give effect to the Government’s announcement that the EIF would be abolished, and the Account is still active, although no new EIF funding rounds have been run since 2011.

According to the latest Department of Finance Nation-building funds financials, at 30 June 2018, the uncommitted balance of the EIF was $3.9 billion, its committed balance was $2.0 million, and in 2017–18, its investments provided a nominal return of 2.1 per cent per annum, in accordance with the Education Investment Fund Investment Mandate Directions 2009.

However, the Minister for Finance and the Public Service, Senator Mathias Cormann, confirmed to the Finance and Public Administration Legislation Committee at both the 2018–2019 Budget estimates hearing and the 2018–2019 Supplementary Budget estimates hearing that it is still the Government’s intention to redirect the uncommitted funds from the EIF to help fund the NDIS.

A previous Parliamentary Library FlagPost discusses the question of ‘fully funding’ the NDIS. 

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