A brief history of education reform
The government is committed to excellence in higher education and
supports innovative, world-class learning environments which compete for
student interest. Reforms heralded by the Higher Education and Research Reform
Amendment Bill 2014 (the bill) aim to widen the range of options available to
students and improve the quality of information available to them when they
choose where, what and how to study. The government is of the view that,
ultimately, it is students who stand to benefit the most if the bill is passed.
Although the bill represents an historic transformation of Australia's
higher education sector—perhaps the most significant policy advancement since
the 'Dawkins Reforms' introduced by the Hawke Government in the late 1980s to
early 1990s—deregulation of the sector has been underway for some time.
It is therefore useful to view the bill in the context of the trajectory
and evolution of higher education policy reform over recent decades.
Deregulation is not new
Students have been 'progressively making increased contributions to the
costs of their higher education'
under successive governments since the 1980s. Successive governments have
sought ways to maintain higher education funding without increasing—or
necessarily maintaining—the Commonwealth's contribution. As a result, providers
have increasingly struggled to maintain sustainable business models.
The last government half deregulated the system, and now I
think we need to do the rest of the work and fully deregulate.
The following chart, supplied by Group of Eight Australia,
illustrates how sources of higher education funding have evolved over the past
Figure 1: Higher education revenue
by source, 1907-2012
The Hawke-Keating Government
In the mid-1970s, the Whitlam Labor Government abolished university
tuition charges in an ambitious effort to spread the benefits of tertiary
education to all parts of Australian society. As put by Professor Glyn Davis,
Vice-Chancellor of the University of Melbourne, in 2008, 'full Commonwealth
financial responsibility for higher education and free tuition for students
made sense in the politics of the time.'
A decade on however, the Commonwealth was feeling the financial strain
of free education, yet faced even greater pressure to expand education
opportunity as rates of school retention to Year 12 had doubled in a single
decade, creating 'a very large pool of potential university applicants'.
Free education had very quickly become unsustainable, and the Hon. John Dawkins
MP, then-Minister for Employment, Education and Training, needed a new means
of financing more university places than could be afforded:
Dawkins needed to create an education system that could
produce a dramatically higher number of skilled graduates to power the
Australian economy in a competitive, globalised world, while at the same time
curbing the spiralling costs of the sector in a tightening fiscal environment.
The Higher Education Contribution
An alternative means of funding higher education was flagged by the Committee
on Higher Education Funding (the Wran Committee), established by the Hawke Labor
Government in 1987 and charged with making recommendations for possible funding
schemes which could include contributions from the direct beneficiaries of
The Wran Committee recommended an innovative solution to the problem of demand
outstripping the supply and affordability of university places: the Higher
Education Contribution Scheme (HECS). HECS represented a way of transferring a
considerable proportion of the cost of education from the Commonwealth to
students, by offering loans students would later pay back.
Cabinet considered charging students 15 per cent of course
costs on the grounds that Labor’s commitment to free university study,
introduced by the Whitlam Government a decade earlier, had failed to increase
HECS was championed by Minister Dawkins, who flagged reforms to the
higher education sector in December 1987 and later announced them in July 1988.
Shortly thereafter, HECS was implemented under the Higher Education Funding
These reforms, which introduced deferred payment for higher education for
the first time, underpin the Australian higher education system to this day. It
has been said that the reforms:
...turned colleges into universities, free education into HECS,
elite education into mass education, local focuses into international outlooks,
vice-chancellors into corporate leaders, teachers into teachers and researchers...He
remodelled higher education and how it was funded in only a few years.
As put by Universities Australia:
The distinction between universities and colleges of advanced
education was abolished. Through campus mergers, 63 institutions became 36... By
the early 2000s the contribution by students to their tuition was greater that
before the mid-1970s when the Commonwealth commenced subsidising students directly.
The reforms meant that the funds available to the higher education
sector could be dramatically increased and more people, from a broader range of
backgrounds, could pursue higher education without placing an undue burden on
the public purse.
However, 'the switch to a user-pays system for students at Australian
universities...was planned years earlier.'
The Australian reported:
Cabinet papers reveal that although Labor opposed university
fees, cabinet considered reversing the policy just months after ruling them out
during the lead-up to the December 1984 election...And the Government laid the
foundation for today’s $15 billion education export industry with a February
1985 decision to allow universities to charge overseas students full fees, with
a 10 per cent cap on international enrolments at Australian
universities...Cabinet considered charging students 15 per cent of course costs
on the grounds that Labor’s commitment to free university study, introduced by
the Whitlam Government a decade earlier, had failed to increase access.
In effect, the Labor Government of which the Hon. John Dawkins MP was a
minister had been advised that 'the abolition of fees in 1974 [had] apparently
had little impact on the composition of the student intake,' and that 'the over-representation
of students from higher socio-economic backgrounds [had] remained constant.'
The development of policy in the higher education sector had been contemplated
years before its introduction.
The Howard Government
Deregulation of the higher education sector continued when the Coalition
won office in the mid-1990s, increasing flexibility for students:
The debate continued after differential student contributions
and a lowered income repayment threshold were introduced in 1998... Particular
emphasis has been on the effects on low socio-economic status (SES) students.
In 2005 the Howard Government introduced a partial deregulation of
student fees, such that universities could increase fees by up to 25 per cent. This
measure, however, was not comparable to the current reforms, as fees remained
capped 'and the system did not allow for demand-driven enrolments, so that the
access of institutions to Commonwealth Grant Scheme subsidies was limited.'
Domestic full-fee paying undergraduate places were also introduced,
allowing universities to enrol additional students, that is, above their government-mandated
The Rudd-Gillard Government
The Australian Labor Party's successful 2007 election platform promised
Australia an 'education revolution'. One of the first higher education policies
introduced by the Rudd-Gillard Government was the abolition of domestic
full-fee paying undergraduate places established by the previous government.
Key universities opposed the abolition when it was announced,
and argued that government compensation for the resultant loss of funding was
The Bradley Review 2008
In 2008 then-education minister the Hon. Julia Gillard MP announced a major
review examining the direction of the higher education sector, led by Emeritus
Professor Denise Bradley AC.
The final report of the Bradley Review made a series of recommendations, and
concluded that 'the established mechanisms for assuring quality nationally need
Labor implemented many of the review's recommendations, such as:
establishing a national regulator;
setting participation and equity targets; and
introducing a demand-driven system.
However, Labor decided against following the review's recommendation for
a 10 per cent increase in base funding for teaching and learning and, in April
2013, cut more than $2 billion from university funding.
The Gillard Government obfuscated the reality of the funding cuts by pointing
to previous spending decisions, maintaining that funding for university places
was 10 per cent higher in 2013 than previously.
Real, per student funding, however, remained below 1996 levels.
As put by Universities Australia:
In response to concern over the increasing cost to public
revenue associated with the demand driven system, the Government announced,
over an 18 month period, a number of reductions to planned higher education
spending. The Senate has since opposed some of these proposed changes but if
implemented, these cuts would result in per student funding being reduced to
2007 levels and 15 per cent below the levels recommended by the Bradley Review
In 2010 the Labor Government announced it had commissioned the Higher
Education Base Funding Review, tasked with making recommendations on the
principles underpinning public investment and inquiring into what appropriate
levels of funding might be.
The Review made a total of 29 recommendations, one of which urged the
government to lift the average level of base funding per student place. The
government accepted and implemented 13 recommendations, but did not accept the
recommendation pertaining to a general increase in funding.
Although the government did not increase its funding contribution, in
2012 limits on domestic bachelor-degree student numbers at public universities
were nonetheless lifted:
This new system was called ‘demand driven’ because it allowed
universities to respond to student demand and allowed more students to benefit
from higher education. It replaced a ‘supply driven’ system, in which the
government allocated student places to public universities.
Productivity growth was strong in Australia—particularly through the
1990s—until the last decade, when a noticeable decline occurred. An aging
population and declining commodity prices now suggest sluggish growth in living
standards should the current trend in productivity continue.
A healthy education sector is crucial for economic growth and community
wellbeing. There is, as put by the authors of the Bradley Review final report:
...an international consensus that the reach, quality and
performance of a nation's higher education system will be key determinants of
its economic and social progress.
But, although important, productivity and economic growth are only part
of the motivation underpinning this reform package. The government is committed
to ensuring individuals are given the opportunity to fulfil their aspirations
in every avenue of life, to building thriving communities and a strong,
The committee strongly supports boosting productivity, recognising the paramount
importance of education:
A well educated workforce is the key to enhanced productivity
performance, particularly in today’s knowledge-driven economy. Research
excellence and innovation plays an increasingly important role in the
advancement of knowledge and technology, enhancing prosperity through the
development, adoption and diffusion of more productive technologies and
Access to education is crucial. As put by the Minister for Education,
the Hon Christopher Pyne:
To support equity and access for Australian students, the
reform bill also introduces a new Commonwealth scholarship scheme to support
students from disadvantaged backgrounds, including from regional Australia.
This is one of the most important and valuable elements of the reform package
in the legislation...The passage of the reform bill will spread access and
opportunity to higher education to more Australians...
As well as benefiting individuals, investment in higher education also
benefits the entire community and wider economy. Universities Australia
submitted that graduates are worth $188 billion to the economy annually.
'Although they comprise only 15 per cent of the population, they contribute
approximately one third of the income tax collected.'
As institutions, universities:
teach 1.3 million students – over 985,000 domestic and 328,000
employ 115,000 staff;
spend more than $23 billion per year;
pay $10.3 billion in wages;
pay around $2.96 billion in income and payroll tax;
underpin the nation’s research capability; and
account for most of the $15 billion annual income generated from
Australia’s education export industry – our third largest export and largest
non-resources export earner.
We are at a tipping point
While Australia performs well in terms of research quality and output,
we rank 'last of OECD [Organisation for Economic Co-operation and Development] countries
in terms of collaboration between businesses and the research community (higher
education or public research institutions).'
Furthermore, as public funding for higher education has stagnated or
fallen through successive governments, international rankings of Australia's
top universities have remained static or fallen, especially relative to
...several places over this period. The 2014 Academic Ranking
of World Universities includes only four Australian universities in the top
100, down from five in 2013. The number of Australian universities in the top
500 of the Academic Ranking of World Universities has remained at 19 for the
past four years.
...it is clear that over recent years federal governments from
both sides of the political fence are only willing to continue funding our
public universities up to a certain level. In the modern age, artificially
compromising the ability of our universities to find their own funding sources
in order to implement their missions could seriously affect their international
standing and, in turn, damage Australia's third largest export industry... the
Chinese centralised economy has been able to shift funding to certain
universities which they want to ensure lift their rankings against
We are being financially crucified between two thieves. No
matter which way we look, there is no salvation. So I have not come to this
position lightly, but I know as a matter of fact as someone who runs a
university, as Father Uren never has, that, unless we get fee deregulation, we
will not have a good university system.
The budget challenges the government faces today prohibit increases in
Commonwealth investment. This bill is therefore the culmination of the
government's commitment to maintaining a healthy higher education sector
despite harsh economic realities which stand in the way of continued and
sustained Commonwealth investment.
Budget constraints and the need for change in funding arrangements were
acknowledged by submitters.
Regional Universities Australia (RUN) explained that:
Given the tight public funding environment, RUN accepts that
the deregulation of student fees is the only feasible way that the sector can
maintain quality and remain internationally competitive.
Demand will continue to grow
Today over 80 per cent of school students complete secondary education, up
from only 30 per cent in 1980.
Many of these secondary school graduates would contemplate higher education as
a means of securing their chosen career. Certainly, in terms of career
earnings, the benefits of higher education are indisputable:
Graduates earn on average $1.2 million more over their lifetimes
According to the 2011 Census, the typical graduate commences on a
salary of around $50,000, however this will vary depending on their field of
Graduates enjoy above average income growth over the course of
their careers. Average graduate incomes grew in real terms at a rate of 5.7%
per annum over the first five years of employment and 2.0% thereafter. Economy
wide, real wages grow by around 1.0% per annum.
In 2011, the top 20% of full time workers were earning at least
$93,739. Graduates were over represented in this category, with more than 28%
earning above this amount. After 20 years, 42% of graduates are in the top 20%
of earners. Less than 12% of workers without any post-secondary qualifications
earn this amount.
In terms of weekly income, the average full-time employed
graduate is $500 a week ahead of the average full-time employee without
post-school qualifications by the age 35.
Furthermore, the Department of Education (the department) cites reports
from the OECD which indicate that 'the amount of education a person has
received correlates with their propensity to be civically engaged and to have
better health outcomes.'
Given all the benefits of higher education, it is unsurprising that
demand is rising. The department supplied the following figures:
Bachelor degree or higher attainment for 25-34 year olds has
nearly tripled from 12.5 per cent in 1991 to 36.8 per cent in 2012. The number
of higher education students in Australia (including international students)
has also tripled from around 400 000 in 1989 to over 1.3 million in 2013. This
is a substantial achievement for a modernising economy. In Australia, as
elsewhere, this raises challenges, such as how to accommodate growing numbers
of students without compromising the quality of education and without
increasing funding pressures.
There is little evidence to suggest that deregulation will act as a
disincentive for people contemplating higher education. In fact, a 2011 report
by Deloitte Access Economics, commissioned by the then-Department of Education,
Employment and Workplace Relations, looked at the impact of changes to student
contribution levels on the demand for higher education and found that:
The focus of the literature on HECS has been on equity and
the participation of students from lower socioeconomic backgrounds as HECS
could potentially increase socioeconomic inequality. For example, people from
lower socioeconomic backgrounds may be more debt averse and so be less likely
to take on a loan to participate in higher education...there is little evidence
in the literature to suggest that HECS has deterred participation in higher
education among people from a lower socioeconomic background.
It is clear from the Deloitte report, commissioned by the former
government, that the HECS system has had a very positive effect on
accessibility. The system does, however, need a more sustainable funding model.
Chapman and Ryan found that the socioeconomic composition of
university students changed somewhat between 1988 and 1993. The main change was
the relative increase of individuals from the middle of the wealth
distribution, and the growth in participation generally was largely driven by
the increased participation of females... Chapman and Ryan found that HECS did
not discourage university participation in general or among individuals from
low wealth groups.
Ensuring that adequate and sustainable funding is available for the
higher education sector—including non-university providers, discussed
later in this chapter—is clearly more important than ever. Yet submissions to
this inquiry almost unanimously concur that public funding has been inadequate
over a long period of time, and has, in per student terms, actually
followed a downward trajectory:
Despite strong public support for universities and research,
and the recommendation by the Bradley Review of the need to increase per
student (or ‘base’) funding by 10 per cent, successive governments have reduced
recurrent funding to the point where Australia sits close to the bottom of the
OECD ladder for public investment in tertiary education as a percentage of
GDP5. While university enrolments have tripled over the past 30 years in
response to policies aimed at increasing participation, public funding per
student declined in real terms by 16.7 per cent between 1994 and 2012...This is
Universities Australia aptly concluded in its submission that:
...the experience of recent years represents a series of
missed opportunities to establish a coherent, appropriate and above all, stable
higher education funding regime.
It is important to make the necessary decisions to ensure the future stability
of Australia's higher education sector:
To maintain the status quo would leave the sector partially
reformed, but not more fully opened to competition on the supply of places as
envisaged by the 2008 Bradley Review of Australian Higher Education. It would
also see universities continuing in a system where diversity and innovation are
effectively discouraged through over-regulation. As participation increases,
the sector would remain vulnerable to future cuts, due to continuing funding
pressures, with limited chance to address either costs or revenue.
The reform package
The committee considered a range of views and consulted widely during
its deliberations, seeking to establish whether passage of the bill would
indeed achieve the government's objectives.
The bill enjoys overwhelming support from the higher education sector,
with the majority of university and non-university higher education providers and
their students supporting the bulk of the proposed reforms.
Most of these providers are nonetheless of the view that the bill could be
improved, and the committee considered their suggestions carefully. They are
outlined in the following chapters.
At the same time, the committee recognises that there is considerable
concern about parts of the bill in some sections of the community, such as many
students and a number of academics.
They are predominantly, although not exclusively, concerned about the impact
they believe the bill could have on student fees. Their concerns are also
examined in this report.
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