Unless properly funded, the future of HE sector looks bleak

The long anticipated final report from the Australian Universities Accord panel was released on 25 February by the federal Minister for Education Jason Clare.

The changes proposed by the review are significant and require a boost in investment and leadership for its ambitions to be realised (for example, lifting the tertiary attainment rate from its current 60% to 80% by 2050).

However, the government’s response to the recommendations is pending. It is unclear if the government will commit to any additional funding to support students and institutions, but this will be known in early May when the federal government releases its 2024-25 budget.

Minister Clare has said the review is a “blueprint not for one budget but for the next few decades”.

Over the past 35 years, Australia’s higher education system has largely been influenced by the 1987 reforms introduced by education minister John Dawkins. Of course, there have been several reforms since then, with varying degrees of success.

A much-reviewed sector

Since 1987, there have been at least eight reviews of the higher education sector, not counting reviews of the vocational education sector, and research and research training. The last significant review happened in 2008 which led to the introduction of a student demand-driven system, but it was rescinded in December 2017. The 2008 review also introduced a set of ambitious educational attainment targets which are yet to be realised.

In September 2016, former minister of education John Dawkins said the 1987 reforms were completely out of date for current circumstances and the fact that they had lasted for 30 years was ‘actually a bad thing’.

Past federal reforms of higher education have resulted in some structural change. At the same time, there has also been a downward trend in Commonwealth (that is, federal government) generosity towards the sector – particularly in contrast to the non-government-funded school sector.

Commonwealth funding

Since the 1987 reforms, the Commonwealth has been the main public funding source for higher education. In 2021:

• Australian government grants accounted for 36.1% of income for Australian universities.

• State and local government funding was minimal and accounted for 2.1% as the Commonwealth had assumed overall responsibility for higher education.

• International students contributed 22.4% of universities’ income.

• Australian government payments for student contributions and loans accounted for 15.9%.

• The remainder (23.5%) came from consultancy, investment, donations and other sources.

Commonwealth expenditure over 10 years

Now, let’s look at how the level of Commonwealth expenditure for the purpose of higher education in Australia has changed over time.

According to the Australian Bureau of Statistics’ Government Finance Statistics:

• Commonwealth expenditure on tertiary education accounted for 2.4% of Commonwealth spending for the financial year 2021-22, down from 3.1% in 2012-13.

• Over the past 10 financial years, Commonwealth expenditure increased the most in social protection (by 1.7 points), in public health services (by 1.5 points) and defence (by 1.0
points).

• Interestingly, Commonwealth expenditure on pre-primary, primary and secondary education increased from 3.7% in 2012-13 to 4.1% in 2021-22. It is worth noting that the non-government school sector has benefited the most. According to the Productivity Commission 2023 Report on Government Services, 59% of Commonwealth funding for schools went to the non-government sector in 2020-21.

• Over the last decade the tertiary education sector received a lower share of income from the Commonwealth compared to the pre-primary, primary and secondary education sectors. In 2021-22, the tertiary education sector received 58.7% of the amounts the Commonwealth spent on the pre-primary, primary and secondary education sectors compared to 82.4% in 2012-13.

Based on the 2021-22 figures (latest available), an additional Commonwealth investment of AU$3.6 billion (US$2.3 billion) would have brought Commonwealth expenditure on tertiary education as a proportion of total expenditure to 3%. This would have delivered improved educational outcomes for thousands of students.

Longitudinal picture

To build a longitudinal picture of the Commonwealth expenditure on tertiary education since the Dawkins reforms, I have retrieved the annual tables from the Australian Bureau of Statistics on government finance.

In brief, the long-term trend over the past 40 or so years indicates:

• The highest proportion recorded was 4.7% of Commonwealth expenditure in 1981-82, but then declined to 4.5% the following year and remained at around 4% for the next six years.

• Commonwealth expenditure on tertiary education as a proportion of all expenditure stood at 4% in 1988-89 and increased to 4.6% in 1991-92. The 1989-92 period was when institutional amalgamations occurred under John Dawkins. Furthermore, 1991-92 was the year for which tertiary education expenditure as a proportion of all expenditure was at its highest level.

• Expenditure decreased to 3.3% in 1992-93 when Kim Beazley was Minister for Education. Over the next few years, Commonwealth expenditure continued to decline, dropping below 3% in 1999-2000 (2.7%) when David Kemp was Minister for Education.

• The lowest proportion recorded was 2.2% in 2004-05 when Brendan Nelson was Minister for Education, but then improved over the next four years to 2.7% in 2008-09.

• Under Julia Gillard as minister for education, the proportion of Commonwealth expenditure increased to 3.4% in 2009-10, up by 0.7 points from 2008-09. Expenditure increased by AU$2.9 billion from AU$8.76 billion to AU$11.67 billion in response to the Review of Australia’s Higher Education and the Review of the Innovation System. Over the next six years expenditure stood at around 3%.

• Since 2016-17, expenditure has been below 3%. For the latest available year (2021-22), expenditure stood at 2.4%.

Outcomes from reviews

One outcome from the various higher education reforms is that the financial contribution from the Commonwealth has diminished over time. Although the Commonwealth has increased funding following some of the reviews, these additional contributions have not been sustained over the long term.

The reviews have not brought about a whole of government approach to coordinate activities associated with universities. A whole of government approach can lead to improved processing for student visas (for example, a government agency assumes responsibility if a student visa is delayed beyond a reasonable time).

Also, the reviews have not bolstered universities’ ‘safety net’ to mitigate a downturn in student demand or unforeseen shifts in market forces. Funding agreements between the Commonwealth and universities which go beyond one electoral cycle (for instance, five years) would be a great way for universities to build financial resilience.

What lies ahead?

Once the federal budget is released in May, it is likely that the Commonwealth will have a set of spending measures to boost universities’ finances, ideally in line with the 2009 budget. These measures will help universities in the short term (two to three years) as the longitudinal data suggests.

However, we should not expect that there will be a significant boost for universities’ long-term financial sustainability.

We must also keep in mind that there are so many competing priorities for the federal government. With geopolitical tensions rising, issues of national security and border protection, ageing population and environmental challenges, expenditure on tertiary education is not at the top of the agenda.

I also advocate for better coordination of all public sector agencies to make the whole reform process a success.

A bleak outlook

Universities will continue to depend on international students and commercial activities to fund staff wage increases, building and infrastructure maintenance plus a range of mission-based priorities.

I would say that the outlook for Australian higher education is bleak.

Five years ago, I wrote that the growth for Australian universities’ revenues was weaker relative to year-on-year expenditure, and that our universities were likely to see operating deficits because of universities’ reliance on international students and decreased government funding.

Sooner or later university leaders will have to address how best to move forward, figuring out what the right size and shape of their course offerings and discipline spread as well as staffing levels are to make ends meet.

University advocacy will also need to adopt a whole public sector approach if it is to be effective in the long run. Convincing politicians and taxpayers that an investment in tertiary education improves people’s lives and needs to be bolstered is a task for us all.

Angel Calderon is director of strategic insights at RMIT University, Melbourne, Australia. Over the past 35 years, he has worked in institutional planning and strategic planning roles across several Australian universities.