Trade Minister Dan Tehan (Image: AAP/Mick Tsikas)

What might at any other time have made headlines for weeks is now little more than a sidebar. Australian universities were thrown a lifeline when federal Education Minister Dan Tehan announced the government’s higher education relief package. 

It provides a financial floor for universities, a guarantee of future income under the funding formula for domestic students even if numbers drop.

It has a potentially huge future financial impact, although a precise number is hard to calculate, as we don’t know how student numbers will pan out. 

There is an immediate cost to government of some $100 million through waiving fees charged by regulators. This is potentially minor in comparison to the cost to government of its guarantees to universities. In essence the Commonwealth is taking on the universities’ financial risk.

That raises a policy concern: moral hazard. It is a concept from economics that has nothing to do with morals, everything to do with risk. If a government (or insurer) steps in with subsidies when risks arise, people will be encouraged not to look after themselves. The classic case is flood relief: if people are fully compensated for losses in a flood they will continue to build houses on flood plains rather than higher ground. 

That’s not an argument for government to be hands off — clearly it has to help in current times. Nobody could have been expected to plan for the scale of disruption we now face. 

It is however an argument to be careful about bailouts of particular companies or industries. The problem with bailouts is, along with helping those who are struggling, they give handouts to those who have barely lifted a finger to help themselves.   

They also have a perverse and unintended consequence of stifling innovation, providing equal assistance to the innovative and the backward.  They encourage industries to put their effort into lobbying for bailouts rather than thinking of innovative solutions. 

We do have innovation in our higher education system — examples include the “Melbourne model”, the recent decision by the ANU to allow entry based on year 11 results, the University of New England’s leadership in distance learning. Innovation should attract commensurate rewards. 

There would be an easy policy fix if we had the British/European university system, where universities were in effect part of government (Cambridge and Oxford are, for legacy reasons, exceptions). In that system, government to a large extent already bears the risk, and can institute reform in collaboration with the universities.

Or if we had the US system where leading private universities genuinely compete, we could rely on market-based solutions, expecting them to self-insure or obtain commercial finance. US public universities are generally state owned and thus reliant on each state’s COVID-19 responses.  

Unfortunately as with so many other institutions in Australia universities combine features of both sides of the Atlantic. In the circumstances, Tehan has done a pretty good job of achieving a balance.  

Predictably, though, the first reaction from Universities Australia was to ask for more — they called this package “an important first step”. No matter how much they get, universities always ask for more.

Universities often cry poor. Their claims should be considered carefully. While some are doing it tough, others — especially those in city centres like Sydney, Melbourne, Adelaide, RMIT, or UTS — are sitting on literally billions of dollars worth of real estate: if they were companies, they would be among Australia’s richest. They can do more to help themselves.

Bernard Keane saw it as a missed opportunity for fundamental reform. While true for this package, there will be plenty more opportunities. Reform of the higher education sector is unavoidable. International students are never likely to return to Australia in pre-COVID-19 numbers. That’s no bad thing.   

Over the past 20 years, according to the Grattan Institute, university revenues more than doubled, from less than $15 billion to more than $30 billion. Growth this rapid in any industry often proves unsustainable over the longer term.

Australian universities have been warned about the risks of excessive reliance on international students, particularly Chinese, for a decade or more, under both Coalition and Labor governments. Although as ANU vice-chancellor Brian Schmidt has observed, governments have not been averse to the income. Schmidt describes it as an “unwritten pact”. 

Whatever unwritten pact might have existed, it is no more. The package does not address loss of international student revenue — for which the government makes no apology. Encouraging Australian universities to concentrate on Australia rather than focusing overseas is clearly part of the intent.

Change like this represents a huge challenge for policy. It will require serious effort from both government and universities if it is to succeed.