In a previous post, I doubted that inadequate public funding for Commonwealth supported students could, with a few exceptions, explain why universities have enrolled so many fee-paying international students. For publicly-funded research, however, structural changes in how funding is delivered have changed its economics.

Government policy has moved away from block grant funding – lump sums of money that universities can spend as they choose – towards project funding awarded on a competitive basis, mainly through the Australian Research Council and the National Health and Medical Research Council.

In the 1990s, as the chart below shows, competitive grants made up less than a quarter of Commonwealth research spending on universities (counting Department of Education plus NHMRC). By the middle of the 2010s nearly half of Commonwealth funding was delivered through competitive grants, though with an easing off recently as ARC funding was cut.

With block grants research funding is largely self-contained; universities do what they can within their overall funding envelope. In the early 1990s total research expenditure by universities was only modestly above Commonwealth government research support.

But project grants do not usually cover the project’s full costs. For ARC project grants it is standard practice to not fund the salaries of academic project leaders, or to fully fund other costs.

Funding for ARC projects does not cover indirect costs associated with using university laboratories, IT, libraries and other facilities and services shared between research projects (and teaching). A report a decade ago suggested that these could be 90 per cent of the direct costs in some institutions.

These unfunded direct and indirect costs are partly offset by research block grant programs, principally the Research Support Program and its predecessors. RSP funding for each university is linked to its success in winning competitive grants.

But the RSP is too low to cover these direct and indirect costs, and it has become less sufficient over time. As the chart below shows, RSP funding is currently equivalent to a much lower percentage of Commonwealth competitive research income income than its predecessor programs were in 2001, despite lifting off its early-to-mid 2010s low point due to the ARC funding cut.

A policy of part-funding government sponsored research projects means that even though receiving a grant increases the total amount a university can spend on research, the revenue it brings in is less than the project’s total cost.

Part-funded research projects create a need for universities to find research money from other sources. Student-driven Commonwealth funding was assumed to be part of this. Until 2004 the operating grant used to support teaching was, as stated in the then funding legislation, expressly for teaching and research.

On 2018 teaching cost data, the profits from teaching Commonwealth supported students are skewed towards the scientific and engineering fields that get the bulk of ARC funding. That funds some of what the RSP does not.

However, I doubt that profits on domestic students solve the problem of under-funded research projects. The profits are spread across the sector, while 60 per cent plus of competitive government-funded research projects are carried out in Group of Eight universities, which enrol about a quarter of Commonwealth supported students.

It can’t be a surprise that Group of Eight universities have turned to the international market to plug the funding gaps on competitive grant projects. In 2018, they earned 52 per cent of all international student fee revenue on 41 per cent of full-time equivalent enrolments, reflecting their relatively high fees.

The COVID-19 crisis in international education is exposing weaknesses in how we organise and fund research. The next post looks at how teaching-research academics are financed.

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