Labor higher education spokesman Kim Carr isn’t happy with Universities Australia. He is taking aim at their claim that ‘per-student funding has decreased in real terms over a number of years.’ Carr says that per student funding increased under Labor.

I think he is right, but these things are surprisingly hard to sort out. We need to distinguish between government policy on funding rates and the average per student funding rate. The two are not necessarily the same.

Per student funding rates have fluctuated over the years in part because universities, by accident or design, have ‘over-enrolled’ – that is, they have taken more students than was specified in their funding agreement with the government. Policies on this have varied over the years, but usually it has meant that universities get a lower funding rate for the over-enrolled students. As a result the average per student funding rate is lower than the official funding rate. Arguably, if universities do this they cannot then reasonably complain about the per student funding consequences.

An important change by Labor was that it largely ended the distinction between students within and outside funding agreement targets. In the final Howard-era iteration of the over-enrolment policy universities received Commonwealth and student funding up to 5% more than the original funding agreement target, and student contributions only for students above that. Labor increased the 5% to 10% for 2010 and 2011, and then introduced the demand driven system in 2012. This meant that many students for which universities would otherwise have received the student contribution only received the Commonwealth contribution as well, pushing up the average funding rate. On the other hand, the enrolment frenzy of some universities in the lead up to 2012 diluted average funding (again, a decline entirely driven by university behaviour).

Labor also finally replaced a Keating-era indexation system that had delivered below-inflation per student funding increases for many years. They stole their own glory by trying to snatch it back via an ‘efficiency dividend’, but the relevant legislation having failed to pass the universities look like they will continue to benefit from this change on a per student basis (except that flat wage growth means that the new system is for this year delivering an increase that looks more like the old system).

With the demand driven system, average per student funding is also benefiting from compositional shifts in enrolment – that is, growth has been strong in courses such as science, engineering and health that have relatively high per student funding rates.

Another issue with per student funding is whether we should count performance driven funding related to teaching. It’s certainly relevant to total government funding, but as it tends to be a bit of a lottery (with constantly shifting criteria and being first on the list for cuts) I’m inclined not to count it.

That said, Labor like all other governments in the preceding quarter century essentially retained underlying funding rates that have an historical and political basis, rather than adopting a pricing system aligned with costs, standards, or market preferences. Most of the huge increases in spending on higher education have been on more students, rather than on more money for each student. Failure to reform per student prices, and the Budget-panic driven efficiency dividend announced in April 2013, in my view shattered the vice-chancellors’ confidence in the current system, and explains why most of them now support fee deregulation.