The Budget significantly understates likely student-driven higher education spending

Compared to last year, for higher education the 2015-16 Budget is uneventful. But the problem with the Budget papers is that they assume that several things that are unlikely to occur will happen. In particular, they assume that Commonwealth contributions will be cut, domestic undergraduate student fees will be deregulated, and that students at private universities and non-university higher education providers will enter the publicly-funded system. While I think only fee deregulation is completely impossible with the current Senate, on the government’s current legislative strategy it is not clear how any of these proposals will become law.

The government’s reform package not passing the Senate will have both positive and negative effects on the Budget forward estimates. The reform package had two significant costs: added subsidies from more students becoming eligible for Commonwealth-supported places, and added doubtful HELP debt from fee deregulation. From this perspective, the Budget is over-stating likely higher education spending.

However, the Budget is also assuming that per student subsidies will be lower than in fact they will be, as the government is still pursuing per student funding cuts averaging 20 per cent. It is also, I think, assuming an efficiency dividend (I can’t see it mentioned but I have not seen an announcement that it is no longer being pursued), and a change to the grant indexation system (although this change would not deliver any significant short term savings). From this perspective, the Budget is under-stating likely higher education spending.

Calculating the net effects of these changes is difficult on the information presented in the Budget. We have used varying scenarios about public university-only student numbers, indexation and the efficiency dividend. Based on these scenarios, the forward estimates understate likely government spending on the Commonwealth Grant Scheme by between $2.5 billion and $3.7 billion. In other words, universities will receive between $2.5 billion and $3.7 billion more than the Budget papers suggest.

On currently available information, we cannot provide a sensible revision to projected HELP costs. Compared to information on HELP published late last year, HELP’s costs have been revised down. The 2015-16 Budget papers suggest that VET FEE-HELP borrowers will shrink from 225,500 to 128,000 between 2014-15 and 2015-16. If so, that is a remarkable response to current efforts to clean up the vocational education industry. They are also predicting fewer HECS-HELP and FEE-HELP borrowers.

The ‘performance indicator’ for the proportion of new HELP loans that are expected not to be repaid has been reduced by two percentage points across the comparable forward estimates years, so that by 2017-18 it is anticipated to be 21 per cent instead of 23 per cent. While an improvement would flow from fewer VET FEE-HELP borrowers, these proportions still look to be on the optimistic side.

  1. Hi Andrew,
    I’m confused over the status of 20% funding cut to Commonwealth contributions. They are still in the budget yet the Reform Bill amendment included the table in Section 33-10 of the five cluster structure without a 20% reduction. So if that gets through when re-introduced where will the savings come from? Or will Minister Pyne’s negotiating position go back to including a 20% cut?

  2. Andrew Norton

    Gary – I’m not sure what strategy will be used for the reform bill, version 3. But I would expect that it would include the 20 per cent cut, to make it more useful as a joint sitting bill, in the unlikely event that this happened.

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