There is a sense of relief for Australian universities that there are no explicit cuts for higher education in the federal budget.

There is also a sense of clarity about what the higher education policy settings are now the Senate passed the Job-Ready Graduates package.

But there are several things in both the budget and the reform package of consequence for Australian higher education, which are likely to resonate for many years, if not decades to come.

Economic outlook: Some of the key assumptions contained in the Budget Strategy and Outlook are sobering news for what lies ahead for universities.

First, it is envisaged a “gradual return of international students and permanent migrants is through to the latter part of 2021” (page 26 Budget 2020-21, Paper No.1). It is also assumed that both inbound and outbound international travel are expected to remain low through the latter part of 2021. This is likely to further put a dent in universities’ financial position, because there will not be many international students arriving for the start of the 2021 academic year. This is also likely to have an impact on the student commencing and returning pipeline for some years to come.

Second, Australia’s population growth is expected to be negative for the first time since 1946. It is expected that the population growth to fall from 1.2 per cent in 2019-20 to 0.2 per cent in 2020-21, and to 0.4 per cent in 2021-22.

Third, the economic assumptions which underpin the budget estimates, provide a sombre outlook. COVID-19 is fuelling Australia’s first recession in almost 30 years, which may be hard to overcome until late in 2021.

Real GDP contracted by 7.0 per cent in the June quarter, preceded by a 0.3 per cent fall in the March quarter. For this year, real GDP is expected to fall by 3.75 per cent and expected to grow by 4.25 per cent in 2021. As a way of context, after the 1990s recession, it took around 2 years for GDP to return to previous levels. However, it took 10 years before the unemployment rate fell back below 6 per cent. Based on current forecasts, the unemployment rate is expected to reach 8 per cent by the December quarter 2020, and 7.25 per cent by June 2021, and progressively decline to 5.5 per cent by June 2024. Without the government’s economic support, the unemployment rate would have risen to more than 12 per cent.

Fourth, Australia’s net debt position for the 2019-20 period stood at $491.2bn compared to $209.6 billion for the period 2013-14, the first year of the current coalition government. Net debt is projected to increase to $703.2bn by mid-2021 and to $966.2bn by June 2024. As a proportion of GDP, net debt is expected to be 36.1 by June 2021 and 43.8 per cent by June 2024, although this will still be a low net debt levels in relation to comparable international economies.

The economic circumstances create two vital questions:

Whether the changes proposed by the government will guarantee continuity of the existing model of university?

Whether the Job-Ready Graduate package will lead to a reformulation of this model where the federal government contributes more to fund universities?

Answers to both may need lengthy conversations.

What lies ahead

There is no doubt that the financial pain experienced by universities will not end anytime soon. While university leaders will have considered the worst possible scenarios in drawing up university budgets for 2021, expectations need to be moderated as to what is feasible over the 2022 to 2024 triennium.

That border restrictions are likely to remain in place for some time, with limited scope for international students to arrive in significant numbers means the financial impact on universities is likely to lead to further restructuring, consolidation and downsizing. This will mean staff departures, closure of courses with low enrolments or which not deemed relevant, deferment or cancellation of infrastructure projects and the disposal of institutional assets to improve universities cash and financial stability. Staff morale is also likely to remain low because of job insecurity, increased workload and other intervening factors.

Further, Australia relies on migration to boost its population, and is key source for skilled workers and professionals. Slower population growth will have an impact on the economic recovery, productivity levels, and the distribution of population across states and territories. These factors may influence student demand and the ability for universities to attract and retain students. Universities may also be limited in their ability to attract talent from abroad.

In the years ahead, a reduced population will also bear consequences on school education, which in turn will have an impact on universities as there are likely to be fewer school leavers.

At the time of the 1990-91 recession, Australia’s binary system of higher education had been replaced by the unified national system, which occurred within the context of the Dawkins reforms. Enrolments in HE increased by 10.0 per cent from 485,065 students in 1989 to 485,066 in 1990 and increased by 10.2 per cent the following year. Between 1991 and 1992, enrolments increased by 4.7 per cent from 534,510 to 559,381.

The expectations are that there will be an increase in the number of domestic commencing enrolments for 2021, and the Federal government is providing additional funding for new university places. This expected boost in domestic student enrolments is likely to last while the labour market remains weak.

The other thing is that the government expects that students will choose to study in disciplines it deems are priority areas. For those who choose to study in non-priority areas, the government is making them pay more for the choice. Students are not necessarily influenced by such price signals and it will be interesting to see what happens over the next few years.

And this is the point about Australia’s net debt, which primarily reflects the government’s borrowings to support taxpayers and enterprises in response to the pandemic. While borrowing costs are expected to remain low for some time (thus making it easier to service debt), eventually the federal government will seek to address the budget deficit. This mean that there may be cuts to government’s service provision, including support for higher education.

Aside from the one-off support of $1bn of new money to support universities’ costs of research through the Research Support Program in 2020-21, the forward estimates over the next three years suggest funding for universities increases minimally.

The net outcome of the Job-Ready Graduates package is that students will contribute more for the cost of their education while the contribution from the federal government is reduced. For some years now, the federal government has sought to extract an efficiency dividend from universities, and it has now achieved it.

Over the years, the funding provided by the federal government as a proportion of total universities income has decreased. It went from 58.3 per cent in 2001 to 52.2 per cent in 2018. By contrast, income from international students has increased from 11.4 per cent in 2001 to 26.2 per cent in 2018.

Sooner or later the federal government will once again seek to extract another efficiency dividend from universities, whether it reduces funding per student, cuts funding for programmes or increases funding driven by performance based measures or competitive programs. Time will tell how the 2020 reforms will be best remembered.

Angel Calderon is principal advisor, planning and research at RMIT




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