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May 10, 2013

Fantasy budget: Andrew Norton would jack up uni fees

Why should public universities receive so much taxpayer money? Lifting uni fees and giving more money to private universities would result in better outcomes, argues Andrew Norton of The Grattan Institute.

After last month’s higher education funding cuts, universities don’t want to hear that there is room for more. But by giving more to private universities and less to public universities, taxpayers could get better a higher education system for less money.

The most important higher education policy of the Gillard government is the “demand-driven” funding system for undergraduates in public universities. In 2012, after a two-year phase-in, most controls on Commonwealth-supported places were lifted. It ended decades of Commonwealth capping and controlling of student numbers. The demand-driven model has many advantages: student satisfaction is up, students are more often gaining access to their first preference courses of study, and universities are experimenting with new learning models. But there is one defect: it only includes public universities, excluding some 60,000-plus domestic students attending about 130 private higher education institutions and TAFEs offering degrees.

April’s higher education funding cuts can be criticised for needlessly causing problems, but such a big-spending area should not be immune from budget constraint. Widening access to the higher education funding system and controlling spending can be achieved simultaneously as part of broader reforms to the tuition subsidy system.

There is not much evidence that the public gets value for money from the nearly $6 billion it will spend this financial year on tuition subsidies. This is not saying that there are no benefits from higher education; a Grattan Institute report last year documented the benefits. But there is nothing magical about public money. Private spending would achieve much the same outcomes.

“… there is nothing magical about public money. Private spending would achieve much the same outcomes.”

In the report I proposed a 50% subsidy reduction in most disciplines, phased in over four years. Maximum student contributions would be increased by an equivalent amount. If this were done, tuition subsidies that were in May 2012 forecast to exceed $7 billion by 2016-17 would instead cost around $4.5 billion after factoring in expanding eligibility to students in private higher education providers.

Why should taxpayers subsidise private universities? In 2011, census data showed that the median male bachelor degree holder would have additional career earnings of $900,000 after tax, compared with a man who finished his education at year 12. For women, the median career earnings advantage is $700,000. There are also substantial non-financial private incentives, such as students pursuing their interests and enjoying the social side of university life.

A phase-in of tuition subsidy reductions is a cautious approach, allowing time to identify and correct any unanticipated or unwanted outcomes. But other countries have taken much more radical steps. England has eliminated all tuition subsidies for new students in subjects except for science, technology, engineering and medicine.

There is an ongoing debate about the consequences of the English subsidy cuts. They coincided with a complicated scheme to control student numbers, making it hard to separate demand and supply effects. But at least for the school leaver market, there has been no lasting effect on applications. Application rates for all 18-year-olds are now just below previous record levels, and for young people from disadvantaged backgrounds they are at record levels.

A key lesson from England and from our own history is that if we want people to go university, the policy focus should be on supply rather than demand. Too few places is a more common problem than too few applicants. And rationing places leads to other negative outcomes: students not getting the courses they want, entrepreneurial education initiatives smothered, and universities neglecting the concerns of their captive student market.

Where tuition subsidies are controlled through capping student numbers they create educational, economic and social costs. This is completely contrary to their claimed rationale. But with an uncapped system now colliding with serious budget deficits, something has to give. The solution is to spread tuition subsidies more thinly over a larger number of people.

* With the federal budget to land on Tuesday, Crikey asked eminent economists and public policy whizzes what they would do if they were Wayne Swan. This is the fifth in our series. You can read the others here

6 comments

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6 thoughts on “Fantasy budget: Andrew Norton would jack up uni fees

  1. Dr Dagg

    Andrew Norton has been pushing the line that uni degrees are for private consumption since he was an advisor to David Kemp (which should probably have been disclosed).

    You just know that when Andrew asks the question: why should the public subsides uni degrees the answer he will come up with will be negative. The reason is that you want an educated populace that can tell the difference between ideological obsession and considered policy.

    The elephant in the room is what do the Universities do with the money. Increasingly it is on administration particularly micro-management. Some 65% of my department’s budget is consumed in overhead dictated to us by the University. Where does it go?

  2. iOz

    Andrew Norton is correct in saying that uni graduates earn more over their lifetime. However, his argument that they should pay all or most of the cost of their uni education because of this ignores the fact that they pay a higher amount of tax. In his first example “A median male bachelor degree holder would have additional career earnings of $900,000 after tax, compared with a man who finished his education at year 12…” such a person would have paid more than $300,000 in income tax alone compared to a non graduate.

  3. Gavin Moodie

    The demand driven system also increased the proportion of enrolments of students from a low socio economic status background.

    Increasing maximum student fees would increase the amount of student debt never repaid. This was 17% of debt in 2011 and so no real problem, despite Norton frequently talking it up as a problem elsewhere. However, it may be a significant problem if fees were increased substantially so there should be some modelling before the proposal to increase fees substantially is advanced further.

  4. Andrew Norton

    Within the current overall funding cap the Commonwealth can’t be worse off by reducing Commonwealth contributions. Losing 17% or 30% is always less than losing 100%. There is as Gavin correctly points out an additional bad debt issue with increasing student contributions beyond current levels, which we at Grattan are going to try to model.

    Incidentally, the above article was very heavily edited and is missing major parts of the original argument. I’ve put the original on my blog: http://andrewnorton.net.au/2013/05/10/my-original-version-of-todays-crikey-article-missing-parts-of-the-argument-restored-non-sequitur-removed/. Not that anyone else is very interested in HE market design, but for the record.

  5. GF50

    More Mickey Mouse degrees from private Universities? Send all overseas students to PRIVATE, all Australian citizens to Public Universities and fund them adequately.

  6. Pusscat

    Whenever I read in a first paragraph a phrase like “giving more money to private” I immediately experience a hot-button visceral pang of negative affect, and will

    usually only read on if I’m in the mood to enjoy the pecuiar delights of being outrageously morally outraged.

    BUT in this particular case I have something to disclose:
    As it happens, I actually know people who are currently Doing Education in each of the two parallel universes being described by Mr Norton, Public and Private.

    Allow me to further enhance your knowledgeableness vis a vis an intriguingly anomalous dichotomy.

    Background:
    For both groups, the Public Institutions Majority (PIM) and the Private Institutions Minority (also PIM), the tasks that are being enthusiastically executed are not

    various according to PIM. That is, both groups are busily constructing quantum-word discussions of quantum-idea notional constructions of reality. Both groups also

    have an undissimilar outcome in mind, that being, interesting-sounding credential acquisition.

    Case One: PUBLIC
    Take for example Jill (to avoid using her real name, which is Student A).She is Doing Education at the Public university nearest to where I live.
    It is a since-1853 solid-sandstone superpremium much-bequested very-sought-after multi-faculty highly-resourced extravaganza, so that most of Jill’s fellow students

    feel right at home because they Did Education previously at Private Schools. These Schools are so Private that you will have heard of each one of them if you are

    reading this, and even if you aren’t.
    (As a taxpayer, I am more than happy to have been generously subsidising these Schools for as long as I can remember, because compulsorily funded Private Schools are

    all about giving parents a choice. (Me, not so much.))
    .
    But a digression has occurred, so let us return to Jill.

    As a taxpayer, and Jill’s friend, I am more than happy to generously subsidise tuition fees for Jill and all her uni friends, noting casually as I do so that, with my

    subsidy, this year each one is paying quite a lot less than their heroic parents stumped up for their final year at Private School.

    Case Two: PRIVATE
    Now, let’s take Tayla (despite what her ex Facebooked).
    Since losing his job in the GFC, Tayla’s dad has been seeking help with his depression at the local Community Health Centre, which is funded by the State Government,

    and so he is gradually coming to understand and accept that contacting the Speaking Clock may have been a more effective option for dealing with mental illness.
    Tayla’s mum is a recovering alcoholic, and is currently working on Step 167 of her 12 Step Program.
    A few years ago, Tayla couldn’t hack another day at Plebeeann Heights High School so she left before Year Twelve, which, she now realises, makes it quite difficult for

    her to join Jill at a Public uni.
    But Tayla is not going to let her suboptimal-SES-quintile-disability stand in her way. She is determined to engage in credential acquisitioning just like everyone

    else.

    So now, Tayla is happily enrolled at one of the many small Private colleges, institutes, arts schools etc in a course which allows her to access FEE-Help. Which means,

    that she is probably not concerned about the (sometimes astonishingly) high fees these places charge for tuition. Also, luckily, her matriculation-shortfall did not

    bar her from entry, which was a big factor when she was chosing where she Do her qualification-related activity.

    FEE-help is a loan designed to feel exactly the same for the student as HECS-help (a loan which is exclusively available to people like Jill in the Public PIM).
    But as a taxpayer I have apparently decided that I’m not as happy to subsidise Tayla as I am Jill, because the two loans are significantly different as to post-

    graduation liability outcomes for our two students.
    For example there a 25% “Loan Fee” with FEE-help which is not present in HECs-help. (Don’t quote me on the nomenclature, because both loans are government iniatives

    and so they require proactive renaming whenever they are tweaked.)

    Starting to get bored so I’ll just make one further general observation:
    Those in the Private PIM, like Tayla, are much less likely than Jill’s friends to have luxuries like cafeterias, libraries, sportsfields, counselling services, highly

    trained lecturers etc.
    Jill is Doing Education in a lovely garden featuring heritage architecture. Tayla is Doing it on two floors of a grimy office block somewhere in the CBD.

    And Tayla will be paying A LOT more to have Done it.

    So, to my own great surprise, I am inclined to agree with Andrew Norton on this one.