by JAMES GUTHRIE, JANE ANDREW and MAX BAKER
On 19 June, the Australian Government announced the most radical shake-up of higher education funding policy in decades. It proposes a range of measures under the Job-Ready Graduates Package that it claims will “deliver more job-ready graduates in the disciplines and regions where they are needed most and help drive the nation’s economic recovery from the COVID-19 pandemic”.
In making these claims, one might charitably describe the Government’s behaviour as disingenuous. We could argue that they are perpetrating a pea and thimble trick on the Australian public.
To express our concerns, we have submitted to the Education and Employment Legislation Committee’s inquiry on the , Higher Education Support Amendment (Job-Ready Graduates and Supporting Regional and Remote Students) Bill 2020, Second Reading.
As accounting academics of longstanding ‒ Distinguished Professor James Guthrie AM FCPA from Macquarie Business School, Macquarie University, Associate Professor Jane Andrew CPA and Dr Max Baker CA, from the University of Sydney Business School ‒ we have a particular insight into the financial aspects of the Government’s plan. It seems that the Government could benefit from a lesson in Accounting 101 at university.
Our submission focuses on the use – or misuse – of the word “cost” to justify this radical change in Australian higher education funding. In our first year accounting course, we would distinguish between accounting costs and economic costs. The main difference being that economic costs include opportunity cost, unlike accounting costs, which only consider the amount of cash spent (some sources refer to accounting cost as explicit cost and opportunity cost as implicit cost).
To help our students in their accounting 101 lesson, we might provide a case study. Below is an example of one such case study, using a few passages from Minister Tehan’s speeches on the bill (extracts from Hansard), and identifying elements within as cash or economic costs. Note that the government is relying on the Deloitte Access Economics, “Transparency in Higher Education Expenditure” analysis released in early 2020 for its cost of teaching.
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Mr TEHAN (Wannon—Minister for Education)
“Providing a lower cost pathway for social work and psychology will mean that there will be more vital health professionals to support the recovery from COVID-19, drought, bushfires and other events” (CASH, the student pays).
“Schedule 2 of the bill amends the Higher Education Support Act 2003 to match the student contribution amounts with the Commonwealth contribution amounts as amended in schedule 1″ (student contribution CASH; Commonwealth contribution CASH)
“These reforms better align the total combined public and private funding for higher education units with contemporary data on the cost of delivering university education” (CASH vs ECONOMIC COSTS).
“Based on university data provided by the sector to Deloitte, the Government has better aligned the cost to students and the taxpayer of teaching a degree (ECONOMIC COSTS) with the revenue (CASH) a university receives to teach that degree. These reforms better align the total combined public and private funding for higher education (CASH) units with contemporary data on the cost of delivering university education” (ECONOMIC COSTS).
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In using this case study, we can show how the Government’s pea and thimble trick works, mixing ECONOMIC COSTS and CASH COSTS as if they are the same. This is unlike the foundational accounting principles, we teach our students, and we find the Government taking a more imaginative approach, symbolically using cost to justify changes, rather than an authentic way.
Our submission to the Senate’s Education and Employment Legislation Committee exposes how the justification for this massive shift in resources for Australian higher education is flawed in terms of the simple argument about accounting cost (cash) and economic costs (opportunity costs).
We believe the Government’s actual goal is to reduce its contribution to Australian higher education for teaching and shift the financial burden even further onto local students, with a 15 per cent cut in total public funding per student. There will be a 7 per cent increase in average student contributions and a 6 per cent fall in overall student-related income per EFTSL for universities. Here we see that the Government’s calculation of the student contribution CASH and the Commonwealth contribution amounts CASH is nothing but arbitrary. And that is how the pea and thimble trick is supposed to trick us all.
Distinguished Professor James Guthrie AM FCPA from Macquarie Business School, Macquarie University, Associate Professor Jane Andrew CPA and Dr Max Baker CA, from the University of Sydney Business School