How defensible were the government’s JobKeeper decisions for public universities?

The Australian Government’s JobKeeper program was intended as a temporary scheme to keep people in jobs during COVID lockdowns and business restrictions. It was originally scheduled to run until late September 2020. With some more limited extensions it finished at the end of March 2021. The government made several decisions that reduced the chance that a public university would qualify for JobKeeper support. This post evaluates those decisions from a public policy perspective. A subsequent post assesses how the various decisions affected public university JobKeeper eligibility.

In the rush to implement JobKeeper, the public university aspects were not well implemented or explained. University hopes were raised only to be dashed, feeding a sense of persecution as well as cutting off potential funding. I will argue, however, that the final policy position reached by the government, except for the time period for comparing 2019 and 2020 cash flows, was not wrong in principle.

More importantly, JobKeeper was never the right response to the higher education sector’s COVID-related problems. It was a short-term program aimed at helping employers maintain staff through domestic lockdowns and restrictions on activity. Regulations affecting the day-to-day activities of people in Australia were, and remain, very disruptive to universities but are not leading to a major loss of income. The financial problem is an international border closure that will last for more than two years. This will cause significant continuing revenue losses from international students into the mid-2020s.

The eventually announced extra government money for research and temporary new student places were more like what is needed. My critique of the government’s higher education response to COVID is that these policies were only announced late in 2020, and largely terminate before borders are predicted to re-open. Additional assistance for 2022 should be arranged.

The hybrid nature of universities complicated their JobKeeper treatment

JobKeeper had to be implemented rapidly. As with many other COVID related changes, the government did in days and weeks what would normally take months and years. On such compressed timelines oversights and errors are to be expected. The JobKeeper legislative instrument was amended ten times, mostly for reasons with nothing to do with higher education. Given the lack of time, JobKeeper had to use categories and data that already existed, in the process making distinctions that a longer policy development process would have fine-tuned.

JobKeeper used thresholds for income loss (15, 30 or 50 per cent depending on organisational criteria) that were only loosely related to financial vulnerability. The thresholds were arbitrary at the margins – depending on organisational status a 15/30/50 per cent revenue loss triggered substantial subsidies, while a 14/29/49 per cent revenue loss led to no support. Organisations that ideally should have received support were always going to miss out, while other organisations received support that they did not need (leading to some returning their JobKeeper payments).

This post is not about the merits of JobKeeper’s overall design, but how universities were treated taking the scheme as it was for other organisations.

Problems with JobKeeper and public universities arose partly because they did not fit neatly into JobKeeper categories. Public universities are partly government entities (except ACU founded by governments, significant public funding, subject to administrative law), partly for-profit business (international students and various other commercial activities), partly not-for-profits (financial surpluses spent on the organisation’s purposes rather than distributed to shareholders or returned to government, self-governing), and partly charities (registered with the ACNC, receive donations, equity-focused programs).

Some people complained last year that private universities had (slightly) softer JobKeeper rules than public universities, but the point of JobKeeper was to help the private sector. It was their hybrid public-private nature that put public universities into contention for JobKeeper payments. Within the different private JobKeeper categories, a key question was whether or not universities would be classed with registered charities.

Charities

The most favourable JobKeeper conditions applied to ACNC registered charities. These charities only needed a 15 per cent decline in revenue to get JobKeeper, rather than a 30 percent or 50 per cent decline for non-ACNC not-for-profits and businesses, depending on whether their annual revenue was below or above $1 billion. But although universities and many private schools are ACNC registered the government decided to exclude them from the 15 per cent rate.

At the time, the government said that the charities it had in mind for the 15 per cent rate were those like the Salvation Army, which were expected to have increased demand. This adds a broader social policy objective to the employment goals of JobKeeper. While universities ran expanded welfare programs for students in 2020, that is not their main charitable purpose under the ACNC, which is ‘advancing education’.

While a special arrangement for charities with a ‘social or public welfare’ purpose would have been defensible, on its own this did not justify the government’s position on universities. It only excluded universities and private schools, not all charities with purposes other than social or public welfare.

What public universities and private schools have in common is that they both receive substantial income from large and mature Commonwealth government programs. Like the fully government agencies that were excluded from JobKeeper, public universities and private schools were already being supported by the government. As I will discuss in more detail later, this meant that mechanisms for COVID assistance were already in place.

The government also suggested that universities looked rather like businesses. In an interview with George Megalogenis, the Treasurer said that ‘They had become very corporatised. They had relied very heavily on international students so they had shifted their business model over time. We were willing to provide very significant support for the universities, but they also had to adjust as other businesses did.’

To put the Treasurer’s point more bluntly, charities do not charge students from low and middle income countries high fees, and then generate big profits by teaching them with cheap casualised staff. Universities were in financial trouble because a commercial enterprise had gone bad, and so it was always ambitious to argue that an ACNC registration should be used to cut the consequent losses.

The government’s position would have been tidier if it had introduced consistent rules about which charities received the 15 per cent rate, or what level of public funding put a charity into the 30/50 per cent categories. But I think is reasonable to say that universities as charities is a minor part of their multi-faceted organisational identity.

The definition of GST turnover

For most organisations the JobKeeper revenue calculation was based on their ‘GST turnover’. This was a convenient number that the ATO and the target organisations already had, as was needed for a program that had to be implemented rapidly.

While well-suited to businesses, for public universities this income measure excluded nearly half their revenue, as government payments to government-related entities are excluded from the legal definition of GST turnover. The rules were subsequently changed to include appropriations paid to universities under the Higher Education Support Act 2003 and the Australian Research Council Act 2001 in their income for JobKeeper purposes.

Putting government payments to universities into the JobKeeper revenue base corrected an oversight. A legal definition written with the GST in mind wasn’t suited to its re-use to calculate income decline for universities. This wasn’t noticed by the people drafting the original JobKeeper legislative instrument, and so government payments to government-related entities were accidentally excluded from the income count.

If JobKeeper is about an organisation’s capacity to retain employees, it makes no sense to omit a major source of revenue. Excluding government payments would have led to public universities getting an exceptionally favourable deal, potentially getting JobKeeper despite a lower percentage decline in total income than other organisations.

Government grants to private schools were also counted in their revenue for JobKeeper purposes.

On this issue the government arrived at a sound and consistent position.

The time period of revenue loss

Of all the JobKeeper university rules, the change to the comparison time period looks most like a special effort to deny them funding that lacked a consistent rationale. The time period was changed from the usual month or quarter to a fixed six month period for public universities, starting 1 January 2020. This was to avoid them taking advantage of single months when substantial decreases in international student fees paid around due dates might have triggered JobKeeper eligibility.

There is nothing inherently wrong with JobKeeper using varying time periods that reflect the different timing of cash flow between firms and industries. Lumpy cash flow, with substantial sums paid in advance or on contract completion, can make one month’s cash flow a misleading indicator of an organisation’s true financial position. But so far as I am aware, no other sector faced a change that looked designed to stop them getting JobKeeper. That the university rules were subsequently amended to give Table B (Bond, Torrens, Divnity and at the time Notre Dame) universities the usual time periods made the decision look even more like singling out public universities for less favourable treatment.

In explaining the different rules for Table B universities, the government said that ‘Table B universities are private without implicit backing of governments and typically have less access to support from commonwealth sources in ongoing revenue.’ While this is true, and relevant to the policy argument I will make below, the JobKeeper rules discussed above already cover this. Any organisation without the significant and stable government grants that public universities receive is more likely to meet the 30 per cent revenue decline rule in a month or a quarter.

In the end, Bond University received $17.7 million in JobKeeper payments, off a 14 per cent ($28.4 million) decline in annual revenue.

JobKeeper was never the right program for public universities

While I lack information on public university month-by-month cash flows, my next post based on university annual reports argues that, even under more favourable rules, most universities probably would not have qualified for it. If some had, it would have been unstrategic support, delivering them windfall gains based on quirks of their cash flow timing, while others received nothing.

The financial aspects of the COVID crisis are playing out quite differently in public universities compared to much of the broader economy. Lockdowns and other restrictions created volatile cash flows in many industries, with fast and big revenue dips followed by quick recoveries as freedoms were restored.

In public universities both the decline and the recovery are over much longer periods of time. Most international students who were due to study onshore in first semester 2020 arrived before the borders closed, and so there was no big hit until second semester, when outside of Victoria the Australian economy was starting to recover.

But universities face the pipeline effects of lost international commencements. Someone who is not a first year student in 2020 is not a second year in 2021, not a third year in 2022 etc. With the borders not likely to open to major international student onshore commencements until mid-2022, this problem will grow at least until then and linger into the mid-2020s. It will peak years after JobKeeper ended.

Using existing government programs

There was always less need to use a generic program like JobKeeper for industries the government already funded. Existing programs could be adapted and payments spread over different time periods. For 2020, the government did do this on a minor scale in a package announced in April.

In the October 2020 Budget the government announced more significant support for future years. This included $1 billion in additional funding through the Research Support Program for 2021 and $550 million in temporary Commonwealth Grant Scheme funding for additional student places, mostly in 2021 but with some national priority place funding continuing until 2024. As the chart below shows, for 2021 every public university is receiving funding under at least one and usually both of these programs. This would not have happened under JobKeeper.

Because Research Support Program funding is based on prior research performance, the research intensive universities did by far the best out of this assistance package. The RSP COVID grant came free of any additional obligations, making it pure profit. A stated goal was to safeguard researcher jobs.

For the CGS funds universities need to provide additional student places, but the money can be used to sustain academic employment in teaching roles. It required universities to apply for the places rather than distributing CGS funds on a formula basis, which explains the variation in allocations.

While conceptually on the right track, these programs were announced late in the year, as part of the 6 October 2020 Budget. RSP funding is formula driven so universities could from then quickly work out roughly how much they would receive. But for the additional student places there was a further application process. Applications closed on 27 November 2020 and the allocation process continued well into 2021.

The problem with these late dates was that university retrenchments were already underway on the assumption of lower 2021 revenue than was in fact going to be the case. It is likely that as a result the additional funding saved fewer jobs and programs than it would have if it had been announced earlier in 2020.

COVID assistance finishes too soon

I do not believe that the higher education sector should be fully compensated for COVID losses. International education is an inherently risky commercial activity, and the government should not create a precedent for a privatise the profits and socialise the losses business model. While there are public benefits in maintaining university research capacity, Group of Eight university pursuit of rankings glory is not something the taxpayer need fund.

Across the higher education system, it is not a sensible use of resources to keep teaching staff on the payroll in the hope that they can be utilised some time in the future when international students return in sufficient numbers. Job losses are, unfortunately, necessary.

That said, higher education is one of the industries suffering high financial and job losses to keep rates of COVID infection very low to benefit the whole Australian community. In the circumstances, it is reasonable to provide on-going public assistance to these industries, where the money can be used productively, until restrictions are eased.

For this reason it was a mistake to offer no additional assistance to public universities in the 2021-22 Budget. There will still be some previously announced CGS money for later years, but on my calculations it is $54 million in 2022 and $43 million in 2023 – helpful for the universities (and students) being supported by it, but minor compared to the on-going multi-billion dollar revenue losses from fewer international students.

As we now know that the universities that rely on the India market have been hit hardest, a 2022 package would need to take this into account.

With borders closed and little government assistance beyond December, universities will be considering the next round of redundancies. La Trobe recently announced more job cuts. Like last year, late announcements would provide fewer benefits than early announcements. But better late than never.

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