Despite a total lack of experience in education, it [the Howard government] has created Commonwealth Technical Colleges, tried to control state school curricula and muttered darkly about controlling state education systems.

Canberra has only been able to intrude because it has the money, not the authority. Perhaps it should leave the money and run. Is it really impossible to argue that an elected Victorian government has a genuine interest in the education of Victorian children and that – horror – it might even bring local insight to the process? …

The mantra “Trust me, I’m with the Commonwealth” has the plausibility of a four-dollar note.

Greg Craven on state government control of education, 2013:

Professor Craven, whose Australian Catholic University is a national educator of teachers, said the NSW foray into teacher training standards was in conflict with the federal approach…

Although the states had neglected higher education and given it little money, they were surprised to discover that “their universities” chose a national regulator over them, he said.

“That came as a shock – the children leaving home and saying ‘get stuffed’ as they went through the door,” Professor Craven said.

“Some of the states have reacted by saying: ‘These are our universities created under our acts, we demand to be part of their regulation (although) we do not demand to be part of the system for paying for them.’

“If the commonwealth actually pays for the production of teachers, which it does, why on earth would it be interested in NSW or Victoria or Queensland or South Australia saying what a teacher looks like?’

A NSW policy that would affect ACU education courses is presumably behind this change of view. As the principal clients of education faculties, I don’t think there is much of an argument that the states should have no say in the kinds of students they take (I have no idea whether the NSW policy is sound or not; I am talking about policy principles).

And Professor Craven should look on the federal bright side of this: if the Commonwealth took the same view as the NSW government, his education courses in Victoria, Queensland and the ACT could be in trouble, not just his education courses in NSW.

As part of a long series of measures to reduce higher education spending, science student contributions were put back up to pre-2009 levels for 2013, an 80% price increase in one year. If the discount was driving demand, we would expect to see higher student charges reduce demand. New statistics released today show that this has not happened.

In fact, as can be seen in the chart below, numbers continued to grow strongly. They were up another 4%, in a market that was up only 0.5% overall. Only agriculture grew by more in percentage terms, and only health grew by more in absolute numbers. Science offers increased by 3.3%, with overall offers up 0.6%

Consistent with the idea that genuine increased interest in science behind this growth, science’s share of 90+ ATAR students increased from an already high 41.4% last year to 41.7% this year. More detailed data comparing 2008 and 2010 shows that science 2010 ATARs were stable at the 90th percentile on 98, that the median had improved from 88 to 90, and that the 10th percentile had improved from 71 to 76. This is the reverse of what we would expect if low fees were drawing in relatively uninterested and low-performing students.

So what explains it? One possibility is that even though student contributions may not have had a big influence on their own, as part of a broader government effort to promote science they helped grab attention. Chief Scientist Ian Chubb continues to promote science courses, albeit often with more enthusiasm than accuracy.

As I have long pointed out, there is no shortage of science graduates. The 2011 census showed again that, with the exception of earth sciences, science graduates have lower rates of professional and managerial employment than people with degrees in areas that draw on similar interests, skills and attributes. I would not want to discourage people from pursuing something that they are passionate about. But I fear that some students may have been misled by government officials, and will face significant problems finding work. The first of the science boom students would have completed their qualifications at the end of 2011, and so they are not yet showing in the numbers below.

The chart below tracks successive budget forecasts on the core tuition subsidy program, the Commonwealth Grant Scheme, since the demand-driven system was announced. In the early years especially there was a significant under-estimate of costs. Cuts announced over the last 6 months essentially put the budget back on the trajectory it was on in 2011. Over the forward estimates to 2017, spending on the CGS will still increase by an estimated $945 million on 2013.

The trouble with these open-ended programs is that a government can spend nearly $1 billion more and still get condemned for cuts, because the new places are not ‘announceables’. This chart puts the increases in Commonwealth-supported places into historical perspective, going back to 1989. Uncapping of CSPs has led to a massive increase in their numbers. They are up 23% between 2009 and 2013, and expected to be up 35% between 2009 and 2017.

—————

After last month’s higher education funding cuts, universities don’t want to hear that there is room for more. But with some policy re-design rather than ad hoc savings, taxpayers could get better a higher education system for less money.

The most important higher education policy of the Gillard government—one she initiated as minister in 2009—is the ‘demand-driven’ funding system for undergraduates in public universities. In 2012, after a two-year phase-in, most controls on Commonwealth-supported places were lifted. It ended decades of Commonwealth capping and controlling of student numbers.

Demand-driven funding is principally aimed at increasing participation in higher education, but it is also an important microeconomic reform. Already, university applicants have a better chance of getting into their first preference field of study. Student satisfaction with teaching is continuing to trend up. Public university entrepreneurial activity is being encouraged, with new ventures such as Swinburne Online attracting significant student interest.

Despite these successes, the demand-driven system has a major defect. It only includes the public universities, excluding a likely 60,000 plus domestic students attending about 130 private higher education institutions and TAFEs offering degrees. It discourages new higher education ventures, especially those hoping to compete on price. A higher education start-up or foreign new entrant with lower costs than a public university will probably still have to charge more. Apart from low-subsidy disciplines such as business or humanities, Commonwealth tuition subsidies exceed $9,000 per student per year. It’s hard to compete on price with universities that get such a large head start.

As the higher education industry around the world is shaken up by new technology and business models, now is the time to ensure that Australia participates fully in this dynamic market.

The key objection to opening up the demand-driven system is that higher education spending is already growing too quickly. This is not just the tuition subsidies paid to universities, but also the taxpayer-funded costs of the HELP student loan scheme and student income support. All these expenditures increase with student numbers. In 2012-13, their combined costs are likely to be around $9.5 billion, an increase of 20 per cent on 2010-11.

Data from a paper by the Allen Consulting Group for the Australian Council for Private Education and Training suggests that extending tuition subsidies to private higher education providers would have cost up to $300 million in 2010, if they all entered the publicly-funded system (although that is unlikely; the same paper showed that on average full-fee places generate more total revenue than government-subsidised places).

April’s higher education funding cuts can be criticised for lacking clear principles and needlessly causing problems, but such a big-spending area should not be immune from Budget constraint. Widening access to the higher education funding system and controlling spending can be achieved simultaneously as part of broader reforms to the tuition subsidy system.

There is not much evidence that the public gets value for money from the nearly $6 billion it will spend this financial year on tuition subsidies. This is not saying that there are no benefits from higher education; a Grattan Institute report last year documented the private and public benefits. Rather, it is saying that there is nothing magical about public money. Private spending would achieve much the same outcomes.

In that Grattan report I proposed a 50 per cent subsidy reduction in most disciplines, phased in over four years. Maximum student contributions would be increased by an equivalent amount. If this was done, tuition subsidies that were in May 2012 forecast to exceed $7 billion by 2016-17 would instead cost around $4.5 billion, after factoring in expanding eligibility to students in private higher education providers.

This is all deeply counter-intuitive for many people (as I was reminded in the furious reaction to my report). But with an income-contingent loan scheme such as HELP, the problem of unaffordable upfront fees is avoided. Once a loan scheme is in place, tuition subsidies provide an additional financial incentive to undertake higher education. But for most people that incentive is already high.

In 2011, census data showed that the median male bachelor degree holder would have additional career earnings of $900,000 after tax compared to a man who finished his education at Year 12. For women, the median career earnings advantage is $700,000. There are also substantial non-financial private incentives, such as students pursuing their interests and enjoying the social side of university life.

A phase-in of tuition subsidy reductions is a cautious approach, allowing time to identify and correct any unanticipated or unwanted outcomes. But other countries have taken much more radical steps. England has eliminated all tuition subsidies for new students in subjects except for science, technology, engineering and medicine.

There is an on-going debate about the consequences of the English subsidy cuts. They coincided with a complicated scheme to control student numbers, making it hard to separate demand and supply effects. But at least for the school leaver market, there has been no lasting effect on applications. Application rates for all 18 year olds are now just below previous record levels, and for young people from disadvantaged backgrounds they are at record levels.

A key lesson from England and from our own history is that if we want people to go university, the policy focus should be on supply rather than demand. Too few places is a more common problem than too few applicants. And rationing places always leads to other negative outcomes: students not getting the courses they want, entrepreneurial education initiatives smothered, and universities neglecting the concerns of their captive student market.

Where tuition subsidies are controlled through capping student numbers they create educational, economic, and social costs. This is completely contrary to their claimed rationale. But with an uncapped system now colliding with serious budget deficits, something has to give. The solution is to spread tuition subsidies more thinly over a larger number of people.

Queensland went down this path in 2011, introducing laws restricting political donations from and to third parties, and limiting their spending during campaign periods.

And now there is a new attempt to impose yet more controls. This time the Queensland government proposes using industrial rather than electoral law to implement its policy. This means that it will affect unions and employer associations, but not other third parties. In practice, unions and business tend to be the biggest-spending third parties.

If this bill passes, Queensland unions and employer groups will have to run Electoral Commission ballots if they want to engaged in political expenditure of $10,000 or more in a year. The political expenditure is defined broadly to inlcude a political cause of belief, and not just partisan campaigning (full definition below the fold). Presumably this would cover routine unions campaigns such as those currently being run by the Queensland Council of Unions.

For the expenditure to be approved, 50% of eligible voters must cast a ballot, and of those more than 50% must approve. The cost of the ballot has to be covered by the organisation proposing the expenditure.

Effectively this law imposes huge decision costs on unions and employer groups, since especially mass membership groups like unions will have to spend a lot just informing their membership of the issues. Otherwise, they are unlikely to get the 50% turnout required. The inevitable (and presumably intended) result is that there will be many fewer third party campaigns in Queensland.

The bill is supported by the minister with the usual rhetoric about transparency and accountability. But members of political organisations do not necessarily want to be involved in the detail of campaigns or activism. Joining is an act of delegation, paying others to sort out the detail of a cause or interest the member supports.

Political campaigns are normal business for unions and employer groups. If their members are unhappy with these campaigns they can say so, and vote out the leadership or leave the organisation if they are not satisfied with the leadership’s response. This is all the accountability that is required.

——————————-
Definition under section 553C.
a political purpose
(1) An organisation spends money for a political
purpose if it spends money for, or by the way of,
any of the following—
(a) giving a gift to a political party;
(b) giving a gift to, or paying the costs or
expenses of, a candidate for election,
whether before, during or after the
candidate’s candidature or election;
(c) publication or distribution in any way,
including through advertising, of material
about a political matter;
(d) an activity other than an activity mentioned
in paragraph (a), (b) or (c) if the activity is
able to, or intended to—
(i) influence a person’s opinion about a
political matter; or
(ii) ascertain a person’s opinion about a
political matter, including, for
example, by opinion polling;
(e) giving an amount to a person on the
understanding that the person or someone
else will apply, either directly or indirectly,
the whole or a part of the amount for an
activity mentioned in paragraph (a) to (d).
(2) In this section—
candidate for election—
(a) means a candidate for election to a
legislature or local government; and
(b) includes a prospective candidate.
legislature means—
(a) the Legislative Assembly; or
(b) the legislature of the Commonwealth or
another State.
local government means a local government or a
local government of another State.
political matter means—
(a) a political party; or
(b) a candidate for election; or
(c) a matter that a reasonable person would
associate with a political object.
political object means—
(a) a political party or other political
organisation; or
(b) a political cause or belief.

political party means an entity whose object, or 1
of whose objects, is the promotion of the election
to a legislature or local government of a
candidate or candidates endorsed by it, or by an
entity of which it is a part.

Only about a quarter of HELP debtors, or 383,000 out of 1.57 million, made a repayment in 2010-11. The ATO classifies 593,000 people as ‘paying off’ their debt, presumably counting people who have made a repayment but have since fallen back below the threshold or have disappeared overseas (the number of people who are listed as overseas or with an unknown postcode more than tripled to 32,365, but I think this number is unreliable).

The reason is that HELP debtors are clustered in the lower income groups, as seen in the figure below. Many of them will still be students, but the largish number (122,000) in the $40,000-$49,999 range suggests that fiddling with the threshold for repayment, which was $45,000 in 2010-11, might substantially increase the number of people repaying. At the other end of the income spectrum, 5 HELP debtors had taxable incomes exceeding $1 million.

The number of HELP debtors with $50,000+ debts increased from 15,143 in 2009-10 to 23,664 in 2010-11. This probably reflects FEE-HELP borrowers and more people staying in the system for long periods of times, such as those doing initial professional entry qualifications under the Melbourne Model.

Repayments through the tax system are increasing, as seen in the figure below. Repayments increased by more than repayers (7%/3%). But there is still far more being lent than being recovered (they don’t report on financial years, but I would estimate $3.5 billion in lending versus $1.3 billion in compulsory repayments).

U of M VC Glyn Davis pointed this morning to the tensions between gender equality and freedom of association raised by this case.

Some commenters on my Facebook page argued that as a ‘public’ university made a difference to how we should weigh up the conflicting considerations – that even if we should tolerate sex segregation in society generally, it should not happen at the ‘public’ University of Melbourne:

This is, however, a publicly funded university and I assume it’s more then likely that the venue was provided at lower/no cost then a private space; effectively meaning the event was subsidised by the taxpayer. For the sake of reputation of the institution, as well as applying best principles, events that entail gender segregation should be clearly not allowed on campus.

The likes of Glyn Davis must remember that they are public servants.

Most universities in Australia are more akin to government departments than private enterprises, they are established by legislation that allows for extensive control over the way they conduct themselves.

‘Public university’ is not a legal concept. The University of Melbourne’s legislation rather pointedly refers to it as ‘public spirited’ rather than public. University staff are not employed under public service legislation, and the governmnent of the day has no say in academic or professional staff appointments.

In practice, the term ‘public university is used to describe the universities listed in Table A of the Higher Education Support Act 2003. But it is not a term that appears in the legislation.

Table A universities do have greater access to public funds than private higher education providers. Most (though not all – Australian Catholic University is the exception) are subject to some public sector requirements in their own state, perhaps most significantly administrative law obligations such as freedom of information.

But I would generally defend the ‘public spirited’ rather than ‘public’ formulation in the U of M Act. There are good small-c constitutional reasons for thinking that universities should be substantially autonomous of government, places of independent thought and speech. Governments have historically tended to accept that view. Though state governments appoint university or council senate members, they only appoint a minority. State governments especially have taken a laissez-faire approach to academic matters.

To me, public funding should be seen as transaction. Governments are entitled to get what they pay for (such as a number of student places), but this should not give them broader rights over the institution. That some taxpayer money might have been used in building the lecture theatre where the Islamic event was held does not give government any on-going veto power over how the theatre should be used.

None of this means that universities should be immune from criticism. But to me the fact that the U of M was set up by a Victorian government statute, or that it receives Commonwealth funding, does not add anything to the case for preventing sex-segregated events on campus.

Source: DIISRTE. The figure shows offers in each field of study as a % of all first-preference applications for that field of study.

But uncapping the number of Commonwealth-supported students is costing a lot of money, a factor in recent higher education cuts. An article in yesterday’s AFR reveals that the universities want a de facto re-introduction of caps – not through changing the higher education funding legislation but through universities agreeing to constrain student numbers.

This would be a backwards step. The fear of losing students to competitors is a key driver of responsiveness to students, and a cartel-like restriction on places would be nearly as bad as the old regulated control.

The low tax deduction plus the more easily-defensible closing off of the voluntary HELP repayment bonus could have major effects on some students.

For a presentation I was doing at Swinburne today I prepared an example using a Swinburne Graduate Certificate of Engineering, a course marketed as professional development and therefore likely to have sufficient link to the student’s current employment to be deductible.

I assumed that the student was currently earning $75,000 a year, giving them a tax rate of 32.5% plus the 1.5% Medicare levy. I assumed they would take out a FEE-HELP loan and then repay it to claim the 5% bonus for voluntary repayments. As figure 1 shows, the two measures substantially reduce the effective cost of the course to the student.

Figure 1: Effective cost of course under current arrangements

As figure 2 shows, with just a $2,000 tax deduction and abolition of the repayment bonus the effective cost of the course to the student increases by more than 50%, from $6,600 to $10,100.

Figure 2: Effective cost of course under proposed arrangements

There are interesting conceptual issues here. The tax system is already biased against human capital investment, as students cannot claim a tax deduction for their investment in their future salaried earning power, though they could if they bought a range of physical assets to produce trading profits.

For undergraduates, arguably the public subsidy and the HELP loan scheme removes any bias against human capital investment. Most undergraduates cannot get easy access to other forms of capital. But in the largely full-fee postgraduate market many students would have alternative investments for the available cash.

There are complications in the argument. It is not always easy to distinguish ‘consumption’ and ‘investment’ higher education. It doesn’t seem quite right that with tax deductions the effective cost of course is much higher for someone on a 15% marginal tax rate than someone on a 45% tax rate. In a book I wrote a decade ago, I thought that maybe flat-rate subsidies were less distortionary than tax deductions.

I’m still not entirely sure how to deal with this issue. But we should watch enrolments in postgraduate courses very carefully.

As usual with these weekend announcements there is not much detail available, and not all the numbers make sense to me on current information. For universities, the main impact will come from ‘efficiency dividends’ of 2% in 2014 and 1.25% in 2015. This will be the first cut to nominal per undergraduate student funding since the Dawkins reforms 20 years ago. [Mookster makes the point below that after indexation there will not be a year-on-year reduction, though I am anticipating that there will be a reduction to Commonwealth contribution amounts in the Act.]

Reducing public funding to higher education is not in itself problematic. But arbitrary changes to the prices universities receive for reasons which have nothing to do with higher education (funding Gonski is the claimed reason in this case) are not easily justifiable. In a more market-based system, we could see whether students would rather put up with cuts or pay more to maintain current services.

This outcomes highlights the political failure of the Universities Australia process that led to their current policy document. By maintaining an exclusive focus on public funding rather than building a political case for more fee deregulation they were always taking a big risk. The idea that a $5 million university advertising campaign could alter the political calculation that there are more votes in schools and health was always pretty fanciful. And so it has again proved to be, even sooner than I thought.

The reality here is that there are vice-chancellors who would rather undermine the services they can provide than concede an ideological point about student charges. They should take some of the blame for the problems these cuts will cause.