by IAN MARSHMAN and FRANK LARKINS
In an earlier piece (CMM November 22) we reported on a detailed dissection of the 5 per cent reduction ($1.81bn) in Australian university revenues in 2020 compared to 2019. We found that decreases in fees and charges and investment revenue of $1.16bn and $1.28bn respectively was partially offset by an increase of $0.64bn in government grants and student HELP payments. There was a wide variation at the individual institution level that led to ranking universities by the severity of the pandemic on their 2020 financial operations.
Understanding past financial history is important. However, as 2021 draws to a close, some appreciation of current year financial performance is increasingly salient. If borders really are to open for international students in December, 2021 may be the year in which university revenues bottomed out. If new COVID virus strains force a rethink of border relaxations, the 2021 financial results of Australian universities become the position from which institutional and government strategy will need to be rebased.
With no public information on 2021 university finances available until well into 2022, any contemporary assessment of Australian university revenues must necessarily be based on assumptions.
Our assessment is that several of the major drivers of university revenue are likely to increase significantly in 2021:
* it is reasonable to expect that Government Grants, student HECS HELP payments and related income streams will increase by at least 5 per cent. (This compares to a 3 per cent increase for 2020.) Grants indexation and domestic student growth driven by the financial incentives embedded within the Commonwealth’s Job-Ready Graduates package will result in significant increases in revenue. A 5 per cent increase amounts to an additional $1.16 billion.
* the Commonwealth has allocated an additional $1bn in research funding for 2021.
* the sharp decline in investment returns experienced in 2020 now seems likely to reverse and return to at least 2019 levels for 2021. This would amount to a $1.28bn improvement for 2021.
Combining these revenue streams should result in an increase in university revenues of at least $3.44 bn for 2021.
the key question then becomes is to what degree will these revenue increases be off-set by further declines in fees and charges receipts (and in particular international student fee revenue
For 2020, fees and charges revenue declined by 10 per cent to $11.48bn. Accordingly, in order to match the anticipated increase in revenue from other sources of $3.44bn, fees and charges receipts would need to decline on average by a further 30 per cent. Should fees and charges revenue only decline by 15 per cent ($1.72bn), university revenues for the sector would return to near 2019 pre-pandemic levels of $37.5bn).
At the individual university level the 2021 outcomes will vary widely given that the percentage fee revenue changes from 2019 to 2020 ranged from +5.8 per cent for Charles Darwin U to -37.2 per cent for ANU (see figure six in our paper for the University of Melbourne’s L H Martin Institute the “Impact of the pandemic on the 2020 financial health of 37 Australian universities”
A second key question then arises. How realistic is the assumption that the sector can withstand a fee reduction of up to 30 per cent so as to sustain revenues at the 2020 level of $35.7 bn?
In the absence of other data an estimate may be made by reference to commencing and enrolment data contained in the Commonwealth’s Provider Registration and International Student Management System (PRISMS). Despite the data base shortcomings, year on year comparability of reporting provides a sound basis for trend analysis. As at September 2021, PRISMS data show:
* for international commencements, 2021 PRISMS enrolments declined by 24 per cent compared to 2020 and by 41 per cent compared to 2019
* for all international Enrolments, 2021 PRISMS enrolments declined by 13 per cent compared to 2020 and by 17 per cent compared to 2019.
For 2020 relative to 2019, the 4 per cent fall in PRISMS enrolments corresponded to a total decline in fees and charges revenue of 10 per cent. On this basis, it appears reasonable to assume that the 13 per cent decline in PRISMS enrolments for 2021 might equate to a reduction of between 20-30 per cent, noting that international student revenue constitutes around 90 per cent of total Fees and Charges income.
Taken together, this analysis indicates that, at the sector level, Australian community and governments should take comfort that for 2021 the Australian university sector has a significant buffer (providing institutions are willing to take investment returns into consideration) to cover anticipated further reductions in international student fee revenue in 2021. It is acknowledged that the analysis does not make provision for annual indexation of revenue or costs. A conservative estimate of revenue increases has been made, in part to allow for a modest level of indexation in any event.
The university sector appears to be showing admirable resilience in its response to the pandemic. Earlier this year Universities Australia forecast a further loss of around 20,000 jobs in 2021 as a result of the pandemic. This significant reduction in workforce indicates that on the expenditure side also the university sector is well-positioned both to manage this year’s decline in international fee revenue and to respond to whatever changes in the operating environment that lie ahead in 2022.
Ian Marshman and Frank Larkins
Melbourne Centre for the Study of Higher Education
The University of Melbourne