Universities lose a lottery

In the Mid-Year Economic and Fiscal Outlook statement, the government announced that it would cut part of its ‘performance’ funding for higher education institutions.

The idea was that universities, through ‘compacts’ with the federal government, would sign up to various performance goals relative to a benchmark. If they met their goals, they would get part of the available performance funding.

The student experience and quality of learning performance performance measures will no longer be funded (the MYEFO does not say whether the targets will be abandoned; other parts of the compacts seem to expect unis to do what the Commonwealth wants without funding). Participation and social inclusion performance funding will be retained.

I’m not a fan of these ‘performance’ funds. I’ve called on universities to ignore them. Aside from the difficulty in devising robust indicators that don’t encourage gaming or downplay other important goals, higher education policymaking is too unstable for the performance programs to be credible.

The indicators end up changing almost every year – this abolition is just part of a pattern – so there is little point in universities putting in place long-term programs to achieve their targets. Effectively, the performance funds are little better than lotteries. The universities that happen to be good at whatever indicator is favoured in a particular year will get rewarded, rather than the performance fund causing the good performance.

The universities will be sorry to lose the cash ($105 million in 2013-14). But they won’t be sorry if they also lose the associated bureaucracy of trying to get their share of it.

Science degrees to cost $11,000 more

One of the policy decisions in today’s Mid-Year Economic and Fiscal Outlook is to rescind Labor’s cut in the student contribution amounts for science, maths and statistics subjects.

While students starting before 2013 will be grandfathered, those starting in 2013 will according to the government’s estimates pay $3,662 a year more, or about $11,000 over a three year degree.

I opposed the cut to student contributions at the time, among other reasons because I doubted that it would increase demand. The MYEFO repeats this argument, citing the Bradley review of higher education policy.

The Bradley review, however, reported shortly before the cut to student contributions came into effect. The student applications data since suggests that my prediction, along with Bradley’s prediction, was wrong.

In the two years after the cut took place, demand for science courses increased 32% in a market that was up 12% overall. Though the slow-moving DEEWR bureaucracy hasn’t yet published the 2011 applications data, media reports earlier in the year from the tertiary admissions centres suggests that science demand was up again.

Given that science graduates were having above-average difficulty finding work on course completion even before the demand surge converted to more graduates, cooling demand is not a problem if that is what occurs.

Though we can never tell for sure simply based on applications, a drop in demand following a price increase would help increase our confidence that relative prices were a science demand driver.