by FRANK LARKINS

At first glance, one may conclude that Victorian universities have not made as strong a financial recovery in 2021 from the COVID-19 pandemic as NSW universities. The headline results are misleading. For example, Uni Melbourne reported a 2021 total income increase of $475m (18 per cent) above their 2020 result, while Uni Sydney reported a seemingly much superior total income increase of $886m (34 per cent).

The primary data sources are the 2020 and 2021 university annual reports. From 2019 to 2020 NSW universities collectively reported a reduction in total income from consolidated entities of $540m, while the Victorian universities had a similar outcome with an income loss of $589m. There was a strong recovery from 2020 to 2021, with NSW universities reporting a total income increase of $1 651m and Victorian universities an increase of $942m. The difference in total income reported of $709m would initially indicate that NSW universities had a superior financial performance in 2021. This is not the case because of differences in accounting practices adopted for income reporting in the two States. Detailed analyses pertaining to the NSW results and the Victorian results are presented in papers elsewhere.

Universities in NSW, Victoria and other states benefited from the winding up of Education Australia Limited (EAL) with the distribution of IDP shares and dividends. The one-off 2021 windfall benefits were in excess of two billion dollars. It seems that NSW universities, with the guidance of their Auditor General, have elected to declare most of their benefits, estimated at around $700m, as income in 2021. In Victoria, the Auditor General has approved an alternative approach with universities mainly declaring the additional income as a non-current financial asset. The different approach means that Victorian universities received several hundred million dollars more income/assets than declared in their 2021 financial statements. Their net 2021 financial position is considerably healthier than the accounts would indicate.

To enable realistic comparisons to be made of the financial performances of universities in different States a common consistent approach to using Australian Accounting Standards for reporting total income is required. This is something that the Australian Government should mandate.

Within the limitation noted above some important financial findings for eight Victorian universities are as follows.

* total declared incomes from continuing operations for 2021 were $11 473 million, an increase of 7.5 per cent on 2020 ($802m) and $213m (1.9 per cent) more than for 2019. Five universities increased their total incomes in 2021 with Uni Melbourne and Monash U being exceptional

* the increased expenditure for 2020 over 2019 corresponded to an increase of $372m in outlays for employee benefits. The outlays resulted in staff losses of 8138 on a head count basis or 3574 on a full-time equivalent (FTE) basis

* total expenditures were reduced by $140m from 2020 to 2021 following an increase of $55m from 2019 to 2020. Uni Melbourne and Monash U were the only universities to increase expenditures from 2020 to 2021

* the expenditure reduction from 2020 to 2021 for most universities occurred because they spent $256m less on employee benefits. Interestingly, collectively they increased staff numbers by 955 while reducing their FTE count by 487. Evidently, some full-time employees were replaced by fractional time employees and casual staff were hired to work fewer hours. La Trobe U and Deakin U were exceptions among universities reducing both staff numbers and FTE count in 2021

* the combined surpluses for 2021 were a very healthy $1.26bn (11 per cent of income)) with seven of the eight universities (La Trobe U was the exception) reporting a financial surplus in 2021. In percentage terms, considering size differences, Melbourne at 18 per cent, Monash at 13 per cent and Federation at 10 per cent were the strongest performers

* Government assistance increased by $487m (10 per cent) from 2020 to 2021, similar to the NSW figure of $461m (9 per cent). The special research funding for 2021 contributed $274m to the Victorian result and $297m to the NSW result

* the reduced income from student fees and charges over the two-year period 2019 to 2021 was $1 062m compared with a reduction of $920m for NSW universities. These reductions equated to 24 per cent of the 2019 fee income for Victoria and 21 per cent for NSW. There are common accounting practices for student fees

* Victorian investment income improved markedly from a reduction of $310m from 2019 to 2020 to an increase of $341m from 2020 to 2021. The corresponding NSW increase was $735m reflecting the different accounting practices

* income from other sources improved by $324m from 2020 to 2021 following a reduction of 48m from 2019 to 2020. NSW universities other income improved by $465m from 2020 to 2021.

The evidence contained in the financial statements for Victorian universities supports the conclusion that two universities, Uni Melbourne and Monash U have made a strong recovery in 2021 in managing the effects of the pandemic; four universities, Federation, Deakin Swinburne and RMIT have made a modest recovery and two universities, La Trobe U and Victoria U remain seriously challenged.

The one-off special research funding and the increase in financial assets received from Education Australia, while not fully accounted for in 2021 financial statements, have been significant in strengthening total financial assets. These “windfalls” will not be repeated in 2022. The fact that student fees and charges income for 2021 was $706m less than for 2019 means that recovery in international student demand is slow.

One can expect 2022 to continue to be a financially challenging environment. Equity markets are unlikely to be as strong as in 2021 and the value of property assets has at best flattened. International tensions are high while inflationary pressures and low unemployment levels may adversely impact on domestic and international student demand. Nevertheless, most universities have established a good foundation for a financial recovery.

Professor Emeritus Frank Larkins, honorary professorial fellow, Melbourne Centre for the Study of Higher Education and School of Chemistry, University of Melbourne