Update 2/5/20: The government has further changed the rules so that university income must be assessed over the six months from 1 January 2020.
When I first wrote about universities and JobKeeper, at the end of March, I concluded that although they were included they were unlikely to meet the required revenue falls. Especially for the universities with $1 billion plus annual revenue, the required 50 per cent fall in revenue seemed like a financial disaster beyond what COVID-19 issues could trigger.
Since then, the universities and JobKeeper story has had many twists and turns. In early April, universities briefly hoped that they would only have to meet the 15 per cent decline in revenue required of charities (they are educational charities). But the JobKeeper legislative instrument specifically excludes institutions listed in Tables A and B of the Higher Education Support Act 2003, which cover all public and private universities.
This flips the normal funding biases of higher education. Generally, educational organisations that were publicly-funded before 1989 have privileged access to government subsidies. Now, for a brief time, the educational charities that are not in the pre-1989 group have easier access to public funding. They only have to show a 15 per cent decline in revenue, instead of 30 or 50 per cent for Table A and B institutions, depending on their revenue. In 2018, 41 non-university higher education providers were registered educational charities.*
Due to their high reliance on international students, a number of for-profit non-university higher education providers are likely to satisfy the 30 per cent decline in revenue test.
Meanwhile Table B educational charities Bond University and the University of Divinity could pay a high price in reduced JobKeeper eligibility for fairly small amounts of research funding. (Although it looks like Bond is applying anyway, for potential reasons I discuss below).
Although the JobKeeper legislative instrument excludes universities from the charities test, another provision seems to make reaching the 30 or 50 per cent revenue fall possible. The revenue base is not all income but rather ‘GST turnover’. I am not a tax lawyer, but chasing definitions through various pieces of tax legislation led me to the conclusion that government appropriations paid by one government related entity to another are not included in ‘GST turnover’. All the public universities except ACU meet the definition of a government-related entity.
As government grants make up a significant part of public university income, this reduces the revenue base from which income loss is calculated. It also means that some universities with revenues over $1 billion would move from requiring a 50 per loss of income to needing a 30 per cent loss of income. La Trobe was one university that thought it was eligible on this definition of its income.
But late yesterday the Treasurer announced that ‘changes will clarify that the core Commonwealth Government financial assistance provided to universities will be included in the JobKeeper turnover tests.’ However, charities other than schools and universities will be able to exclude government revenue, which means (unless there is another change) that several non-university higher education providers such as Avondale College, Christian Heritage College, and Tabor College can deduct their Commonwealth Grant Scheme money.
The change in rules can be disallowed by the Senate. As Labor has said that it was a mistake to exclude universities from JobKeeper on the charity rate, they might move a disallowance motion. The non-government parties need one more vote to disallow than they need to block, because they are moving a motion and a tied vote is lost. I can’t see how this can happen without One Nation’s support, so the government probably has the numbers.
Despite this, hope is not lost for all universities. The University of Sydney believes it has a case even if it includes government revenue, despite being in the $1 billion plus club that requires a 50 per cent decline in income for JobSeeker eligibility. I think this is because of the timing of its income. According to the JobKeeper legislative instrument:
the turnover test period must be:
(i) a calendar month that ends after 30 March 2020 and before 1 October 2020; or
(ii) a quarter that starts on 1 April 2020 or 1 July 2020; and
(b) the relevant comparison period must be the period in 2019 that corresponds to the turnover test period.
Government revenue is typically paid in fortnightly instalments during the year. But international student fees are paid in lump sums at certain times, with multiple due dates for University of Sydney internationals in March this year (and presumably last year). And so although Sydney’s announced downturn in revenue is much less than 50 per cent of its annual revenue, in certain months of the year international student income would be over 50 per cent of cash received. I suspect Bond University’s claim is based on a similar timing issue.
The government has never given any clear reasons for how it classifies universities. This makes it harder than usual to tell what is consistent with the policy intent and what is taking advantage of a technicality.
On the GST turnover issue I am inclined to give the government the benefit of the doubt. As a number that most businesses already have GST turnover was administratively convenient, and could therefore be used quickly based on existing information. It also goes closer than other potential measures of income to dealing with the immediate major problem many organisations face, which is cash flow during the COVID-19 shutdown. That government appropriations aren’t usually counted in GST turnover was overlooked in the rush to get the legislative instrument ready. For an organisation to keep going total income matters more than differences between types of revenue.
On the timing of income flows, however, I think Sydney’s situation is much closer to the problem the JobKeeper policy is trying to alleviate.
A different set of arguments, requiring the government to be much clearer about how it sees universities, would be needed to justify changing the rules again. I could see a case, for example, in a policy that recognised that the consequences of COVID-19 for higher education make it more like a cruise ship company than a cafe. There is going to be a major medium term reduction in demand, not a quick recovery after the customers are allowed back in.
A six month JobKeeper policy cannot protect jobs that either won’t be needed or can’t be funded in the next few years with a significantly reduced population of international students.
A policy that focused on protecting high-priority university activities, such as partially-complete research projects or courses that rely on international students, might be better than funding universities on semi-random factors such as the timing of their annual cash flow.
But realistically that isn’t going to happen, and universities should take advantage of JobKeeper where they can. It isn’t going to solve their main problem, but it would give them some time to cut costs in a more orderly and strategic way.
* From a Twitter response, the way I wrote this paragraph led to a conclusion that the government’s response favours private education. I don’t believe that this was a policy goal. The government wanted to created a lower 15 per cent income decline threshold for charities. However, it decided to exempt two groups of educational charities, universities, which are mostly public, and private schools. Their common factor is that they already receive very substantial public funds. A analysis through the prism of public and private cannot explain this decision.
This exclusion left a few dozen private higher education providers (along with many other educational charities) in the category that can get the lower 15 per cent threshold. It is quite likely that private higher education providers were never actively considered at all and were just swept up in a bigger category.
In the Tehan higher education assistance package only one initiative, suspending the 25 per FEE-HELP loan fee, primarily benefits private higher education. But the saving goes to students, not the providers. The FAQs say it will encourage students to remain enrolled, but given anyone already enrolled had accepted the loan fee as a cost I doubt it will make much difference to private provider EFTSL.