As a statement of the transformative power of education the budget is all but impossible to beat

For all the media focus last night on cuts to student funding and reductions to research the government has staked the country’s future on a bigger, richer and ever more innovative higher education system. If it works Australia will enjoy innovative and competitive providers focused on what students and society want. If not the result will be a socially stratified education system with a dozen or so expensive, elite institutions serving the very able and affluent and a mass of undifferentiated ordinary ones for the rest. Whatever happens this Wednesday morning begins a new era of education which will change the system even more than John Dawkins did. Whatever you think of his plan there is no faulting Christopher Pyne for courage.

First reactions

There was stunned silence last night from some of the usually energetic critics of the government as they digested a clever political package. It is hard to see why, given what we got is what Education Minister Chris Pyne promised us, although earlier than he had hinted and in one huge hit. While the National Tertiary Education Union had predicted what was coming President Jeannie Rea was still appalled; “students and their families will be hit by a massive triple whammy as result of tonight’s budget; government funding per student is being cut; there will no longer be a cap on the maximum fees students can be charged; and the cost of repaying student debt will increase.” The union’s ACT secretary Stephen Darwin summed up the mood of those who loathe the idea of universities in the market when he tweeted “Tonight (ANU VC Ian) Young and his Go8 colleagues should hang their heads in shame for destroying higher ed in Australia.”

Funnily enough Professor Young did not see it this way. With the Go8 getting a great deal of what it has demanded for years he said, “the budget package is an integrated set of progressive measures which will enhance Australian higher education and research.” It may not sound all that effusive but this is as close to praise as the Eight goes. Professor Young’s University of Adelaide colleague Warren Bebbington went further. He said the reforms were “much needed” and “will gradually enrich and transform the national education landscape.” In a careful way Universities Australia managed to sound simultaneously grateful and regretful. “Ongoing budget constraints and the fierce competition for public funds have seen public funding per student fall over time.There has been very little ability for universities to address the shortfall because the fees that universities have been able to charge have been capped. With full fee deregulation, this will no longer be the case.” Even the Regional Universities Network, reconciled to increased student costs, congratulated the government for not cutting the student loan repayment threshold to the minimum wage.

It was left to the Australian Technology Network to point to the problem at the heart of the strategy, “whilst the Government has confirmed its commitment to ensuring access for all students who qualify to attend an Australian university the cost of that reform will be borne by the very students they hope to attract.”Students aside, researchers took the biggest hit – the Academy of Science identified $420m in cuts across the forward estimates to the Australian Research Council, CSIRO, Defence Science Technology Organisation, ANSTO and marine science. However there are more ticks than crosses (read below), with one enormous one, being the new medical research endowment fund (target: $20bn). This delivers on Prime Minister Abbott’s long made promise to be a great friend to the field.

Generational change

Some 15 years back then education minister David Kemp took a proposal to the Howard Government cabinet, based on the West Review of higher education, to create a voucher scheme, for deregulated undergraduate degrees and fees. It was knocked back about an hour after it was leaked. But now Tony Abbott and Christopher Pyne have done what Mr Howard did not dare and acted on the intent of the West Review. Mr Pyne has done just about everything Dr Kemp wanted back then and in his and Andrew Norton’s recent report on demand driven funding. We are to have a voucher system for enabling courses and undergraduate degrees under another name – with demand driven funding continuing. And the market will set the price, with universities free to charge what they like. What is more, the Prime Minister has backed him, committing uncapped amounts of money to higher education in a tight budget. People who see the values of education and the market as antithetical will understandably abhor this budget but as a statement of belief in the transformative power of education it is all but impossible to beat.

Where’s the money coming from?

From Treasury first, followed by students. The budget extends the higher education loans program to cover sub degree courses, diplomas and advanced diplomas and to bachelor programs taught by private providers. This will cost around $820m over three years. Universities will also be free to set their own course costs – which students will also be able to borrow to pay– and nobody knows how much this will add to the debt Canberra carries, until graduates start earning. And when they will do they will pay more back. For a start universities will increase their course charges – who knows by how much, but if the UK experience is any indication every comparable university in a discipline will match the price leader. Students will also be slugged with a bigger per centage of the cost than now occurs. The government says it is “rebalancing the Commonwealth’s contribution towards course fees for new students with a reduction of 20 per cent on average,” (from 2016 for new students, 2020 for existing ones). This is roughly what the Commission of Audit recommended but “average” has a multitude of meanings – an increase of 20 per cent in some disciplines (law, business, for example) will mean students are not far short of paying full cost. There will be an immense amount of work (and a good deal of gaming) involved in working out how increases operate across disciplines. Students will also pay a real rate of interest on their loans, 6 per cent, (another Commission of Audit idea).

Small but cruel-ish cuts

Universities and researchers are also taking smallish but significant hits. As expected, operating grant indexation will be based on the CPI alone from 2016. Numbers being crunched last night indicated universities that have agreed to 3 per cent plus pay rises per annum for the next four years will be short. Doctoral students will lose $173m over three years that is now allocated to support their study. If universities do not cover this cut graduate students will be able to access the student loan scheme to pay their fees. This may not save much money but it will generate a great deal of grief. The Australian Research Council also takes another hit. Following cuts to announce specific research projects last year the ARC will now lose $75m over three years as an efficiency dividend.

And the winners are

University leaders and their colleagues who believe that the education they provide is so superior to the competition that students will pay a market price to study with them will be delighted. Universities with strong research records will also be pleased that, as Mr Pyne all but promised last week, there is $150m for the National Collaborative Research Infrastructure Strategy (but this is hardly enough to make the program permanent) and $139.5m for 100 new four year Future Fellowships. But most important is the capacity universities will have to raise and spend their own new money from deregulated fees (less 20 per cent, which will go to scholarships for disadvantaged students) on research, or teaching as they choose. While Group of Eight VCs have got what they want on fees entrepreneurial vice chancellors of teaching focused institutions will look to expanding what they offer and build cross-sector partnerships, especially with lower cost providers. University of Canberra VC Stephen Parker worries about the social impact of the new system, but his plans for a cross-sector polytechnic will work under Mr Pyne’s plan.

Who loses

However you cut it students do. They will pay more for an education that the government says gives them the foundation for careers where they will earn way more than people without degrees. But whatever they ultimately earn they will start paying off student debt at a marginally higher rate and from a lower threshold, just over $50,000. Still, it could be worse the Commission of Audit recommended the basic wage (around $30,000) as the starting income for repayments. Everybody who believes that education should be funded for the public good not private profit will also deplore last night’s announcements. There are also cuts to the Higher Education Participation Program, which goes to the heart of the new model. Mr Pyne will argue the new scholarships funded by universities from increased fees address equity, especially in the bush. “This will especially help students from regional Australia who often face additional challenges when pursuing study after school,” he said last night. He will also undoubtedly argue that access to “starter courses” (my phrase not his) will help disadvantaged young people prepare for university. But this will not cut it with people who know how hard it is to increase participation among young people from low socio-economic backgrounds.

Now the selling starts

Since he started as minister Mr Pyne has been working on the lines he will use to defend the budget. He has argued that education increases income and it is accordingly fair that students pay more. He has pointed to demand driven funding as creating a place for everybody able and he regularly reminds us that the loan scheme ensures nobody is excluded by course costs. Given he will have the support of many (most?) vice chancellors and some of their lobbies the minister should be able to starve opponents of oxygen. The challenge for the National Tertiary Education Union and student groups is to explain how many students will graduate owing a big debt and make the case that universities will now be run like businesses, which they can certainly make a case is antithetical to education.

Game to the last.

Good for Cooperative Research Centre Association chief Tony Peacock. From the day the Commission of Audit recommended closing the program Professor Peacock was out explaining what CRCs do and noting individual achievements. He was still at it a couple of hours before the Treasurer spoke last night. But to no avail the 17th round for CRC selection is cancelled and $80m is out of its budget for 2015-16 and ’17-’18. With a review of the program due later this year the signs are not good.