Did per student higher education funding increase under Labor?

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.

2 thoughts on “Did per student higher education funding increase under Labor?

  1. Andrew, as with much higher education number debate the problem is as much the question as the data.

    The university argument is whether Government funding combined with student contributions is sufficient to deliver a reasonable education outcome. The assertions we make are:
    1. that the combined funding is not sufficient and tending worse, which is a claim about the level of resource needed;
    2. that the Govt contribution in particular has reduced in value.
    3. the Student contribution reduced in value year to year at same rate as Government but in 1998 (three level HECS), 2005 (Nelson plus 25%) and 2008 (switch of business accountancy to top rate) it went up in real terms, the second of which was not match by a reduction in Govt contribution

    Now you need to think about those claim before trying to put numbers to them.
    Simplistic example: a uni in year 1 teaches 50 engineers and 100 accountants; in year 4 it teaches 75 engineers and 110 accountants. If all else remains the same the per head average will have risen – because the proportion of engineers, funded much more than accountancy, has increased. That would give Senator Carr his increase but leave the uni unimpressed ,. For unis the issue is whether the resource for the output has increased or reduced.

    When I look at the Gillard package post Bradley there were very few initiatives that led to unis getting more for doing what they do better (or just for doing it more expensively). The ones that did go through tended to be the ones that the labor governemnt pulled back from – eg performance funding; it also cut the low SES loading. The main positive change was the index change which formally is about maintaining real value not increasing it.

    So from my end part or a lot of the explanation for the rise in the chart Senator Carr uses is that over 2009 forward unis did shift the balance of teaching towards higher funded courses – the data is clear about that. I do not know what % impact that has on the average per head but my very rough estimate came in at 1-2%. At least that is the only significant factor I can see in actual policy changes.

    I am also dubious about those charts over any significant period: the choice of deflator then matters more than the base data item on my observation – I have seen variant curves driven by choice of deflator – one example is to compare teh charts in Bradley with that in Lomax Smith. This point undercuts every one who uses them – me, UA, opposition or Government.



  2. Conor – I don’t think we are in any great disagreement. I think fully funding all u/g places and the new indexation system represent an improvement against the long-term trend, so Carr is broadly right on that narrow question.

    But this is not saying that the underlying funding rates are right.


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