Address to the Australian Financial Review’s Higher Education Summit

Speech
  • Minister for Education and Training

E&OE TRANSCRIPT

Michael Stutchbury: … introduce the Minister for Education and Training. So it’s with great pleasure that I do introduce Simon Birmingham, the Minister for Education and Training. Since 2015, the first Education Minister in the first Turnbull Ministry. The minister, of course, is a Master of Business Administration from Adelaide Graduate School of Management. Something I hadn’t quite realised before I looked him up, but he’s got quite a history in the liquor industry, having worked for the Australian Hotels Association, for the Winemakers Federation; that doesn’t quite come across in his everyday demeanour, with his coolness and his calmness, but everyone can you welcome to the stage Minister of Education Simon Birmingham.

[Applause]

Simon Birmingham: Thanks so much, Stutch, for that welcome. Indeed, people do often wonder why on earth I left a happy life working in the Australian wine industry for politics, and it quite often, of course, as journalists well know, the two still go hand in hand quite well together.

Ladies and gentlemen, thank you for the chance to be with you this morning. Can I begin by acknowledging the traditional owners, the Gadigal people here, but all of Australia’s Indigenous peoples, whose knowledge we continue to learn more of from and build upon as a nation.

To the hosts at Financial Review and Deloittes, to, indeed, distinguished chancellors, vice-chancellors, leaders of academia, higher education policy and others gathered here today. Wonderful to be with you all. It is a pleasure to be back, in fact.

I saw many of you at last year’s Summit; a time made the case for some changes in relation to higher education, and I have seen many of you over the course of the year, including in May in Canberra when I announced the details of the government’s proposed higher education reform package. In the weeks that have followed some seem to have acted with some surprise at some of the measures announced or even suggested a lack of consultation. However, to be frank, anyone saying such things with sincerity clearly hasn’t been paying attention.

Fifteen months ago, in the 2016 Budget, we embarked upon a very public consultation process that commenced with the release of an options paper. Amongst other objectives this paper clearly set the requirement of – and I quote – meeting the financial sustainability savings outlined in the budget. Questions posed in that 2016 budget options paper were also frequently premised with the words – and I again quote – subject to the financial sustainability savings outlined in the budget.

In case anyone has forgotten, those 2016 budget savings targets totalled $3.5 billion over five years, and were achieved primarily via a 20 per cent reduction in Commonwealth Grants Scheme payments. Like it or not, an objective of the reform consultations was to bring a level of budget sustainability to the higher education budget which has ballooned in recent years, while also driving continued excellence in our globally acclaimed higher education institutions.

The 2016 options paper was also quite explicit about some of the policy options that could achieve this budget sustainability, as well as those to drive excellent and equity. Again, for those who may have forgotten what was in that paper, some of the options it canvassed included a small reduction in the government grant per student; a small increase in the maximum levels of student contributions; changes to HELP repayments and thresholds; methods to reallocate all post-graduate CSPs; and other options such as the expansion of sub-bachelor opportunities, enhanced transparency measures and the future of the HEPPP.

All of these options – and the $3.5 billion in budgeted savings – were subject to comment via public submissions, meetings and fora, taken through an election campaign, and discussed extensively with an expert panel. After 12 months of consultation, the 2017 Budget this year proposed a slightly reduced savings target of $2.8 billion, delivered through a combination of the measures that had been publicly canvassed, as well as proposals intended to lift excellence and equity.

Some will say, no doubt: so you did consult? So you did take the savings proposal through an election? But so what? Why the need for budget savings? Why shouldn’t higher education be exempt? Firstly, the need for budget savings should be self-evident. The Commonwealth Government remains in deficit – has been for nine years, notwithstanding the more than $100 billion worth of budget repair that our Government has delivered. The Federal Government will spend around $17 billion this year on interest to service our debt. This wasteful spending is now around the same as my department’s entire annual budget for higher education and research. Does anybody think it would be a good idea not to meet the projected return to budget balance in 2021, letting the annual interest bill balloon even higher, and therefore putting even greater pressure on future budgets to find even bigger savings?

The 2017 Budget demonstrated a credible plan back to surplus, but it requires higher education to make a contribution, just as earlier higher education reforms contributed to the markedly higher spending and budget deficit that we have today. Following Labor’s uncapping of bachelor places in 2009, growth in domestic undergraduate enrolments soared by around one-third, putting an additional 156,000 taxpayer-funded places into universities today. Generous indexation has also seen base teaching funding per student growing in real terms from – in 2017 dollars for comparison – just over $18,000 in 2011 to over $19,300 in 2017. As a result – a combination of these factors – taxpayer funding for teaching and learning at our universities has increased by more than 70 per cent since 2009, growing at a rate far faster than the economy or government revenue. There’s also now around $50 billion worth of student debt that has been funded by taxpayers; around one-quarter of which, on current projections, is not expected to be repaid.

As Jenny Lambert from the Australian Chamber of Commerce and Industry put it to Senate Committee inquiry hearings in July: there is no magic pudding for higher education funding. Now, I am immensely proud that Australia has achieved a substantial expansion in access to higher education through this investment – not as proud as all of you should be with your contribution [indistinct] – with 32 per cent of working age Australians now holding a bachelor degree or higher. This is almost 20 per cent above the OECD average, and represents a higher proportion of graduates than countries like New Zealand or Canada. Equally, 2016 OECD analysis shows that Australia has the sixth highest levels of per student funding from all sources, at nearly $US20,000 and standing at 23 per cent above the OECD average.

Our universities are well funded by global standards. They have enjoyed phenomenal growth in domestic student numbers and associated revenue. When Labor instituted the demand-driven system, it was always envisaged that savings would be made to ensure the system was sustainable. Indeed, Labor proposed some $6 billion worth of savings just before losing office, but only partially realised them. It even proposed an efficiency dividend, with then Prime Minister Julia Gillard saying on 16 April 2013: The number of places has grown, but funding has also gone up per student place. Money to universities is still going to grow. We’ve got universities on a growth path. What we are asking them to do is for one year to accept a two per cent efficiency dividend, and in the second year a 1.25 per cent efficiency dividend. That means their money would still grow, it just wouldn’t grow as fast as they’d obviously wanted. They were Julia Gillard’s words, but I couldn’t put it better myself. But, for pure reasons of political opportunism, Bill Shorten now opposes what he largely proposed in his dying days in government.

It’s clear the funding arrangements and opening up of the system has to be made sustainable. Labor realised it. Many commentators realised it. As Ross Gittins, economics editor at the Sydney Morning Herald, said on 29 May following this year’s Budget: the small funding cuts imposed on universities in the Budget don’t rouse any sympathy.

I’m confident that university leaders, including many intelligent people in this room, can manage the proposed 2.5 per cent efficiency dividend on CGS funding to be levied in 2018 and 2019. When considered alongside the slight increases in student contributions, university income for CSPs will be 2.8 per cent less than would otherwise be the case, but has no impact on all of the other sources of university income such as research grants.

Indeed, overall research funding and support is on the increase. We’ve committed an additional $2.3 billion in new sustainable funding over 10 years for national scale research infrastructure under the National Innovation and Science Agenda. This includes $150 million in ongoing secure operational funding for national facilities under the National Collaborative Research Infrastructure Scheme. After our reforms are fully implemented in 2021, it is projected that base teaching funding will still be around $18,500 per student, in 2017 dollars; a level of funding that in real terms is more than it was in 2011 and more than it has been at times of substantial expansion. For example, in 2009, when base funding was five per cent lower than we project it to be in 2021, university enrolments still grew by seven per cent.

But while university funding has been increasing over recent years, it’s also fair to say that costs have been growing at a slower rate. An analysis by Deloittes shows that between 2010 and 2015 the average cost of delivery per student increased by 9.5 per cent. Over the same period, per student funding grew by 15 per cent. The reaction of some in the sector to the efficiency dividend proposal would suggest that they don’t believe the basic laws of business and economics apply to universities. However, surely, surely there are economies of scale that can be achieved from massive growth in student numbers. Surely there are efficiencies that can be gained from adoption of new technologies. Surely there are work or teaching practices that can be modernised.

This conference has already been exploring concepts on how to modernise universities to deliver greater benefits for students and realise desperately needed efficiencies. Former vice chancellor Steven Schwartz [indistinct] has belled the cat on outdated teaching methods, the way capital could be better used to support investment and the excessive shift in head count from teaching to administration. Former ANU Professor of Business Administration Keith Houghton has released research revealing significant scope for enhanced productivity and potential savings across many Australian universities who have, in many respects, been perhaps resting on their laurels with easy taxpayer funding flowing into their coffers.

Now I appreciate that nobody likes receiving less funding, even if it is only a slightly slower rate of growth than would otherwise have been the case. However, the sector is kidding itself if it thinks the pressure to address the contribution escalating higher education spending made to the budget deficit will just go away. There are plenty of areas where universities can manage their costs within their available revenues; savings and efficiencies don’t have to go to the heart of teaching, learning or regional campuses. And remember this: revenue to universities from government-supported sources is still projected to increase by some 23 per cent between 2017 and 2021. That’s a level of funding certainty that would make many businesses envious.

Less than half of all school leavers go to uni, so that’s still a lot of taxpayers providing funding for a public good, even when they or their children don’t go on to post-school studies. Of course, Australia and the world benefit from a better qualified workforce, which is why costs are shared between students and taxpayers. To balance the change for universities, and better reflect the public-private benefits that accrue to graduates, as you know, students are also being asked to make a slightly greater contribution. Graduates can accrue between $700,000 and $900,000 more income over their working life than persons whose highest level of education was year 12. Our modest 1.8 per cent fee increase for students in each of the next four years is the first such increase in over a decade. On average, taxpayers will still pay the majority of student fees, an analysis which doesn’t even include the additional significant taxpayers subsidies provided via our generous student loans.

I note that some VCs have expressed concern at these modest fee increases, yet all but one VC supported full fee-deregulation as part of the previous package. Some have even questioned whether the proposals could act as a barrier to participation, ignoring the wise words of Professor Bruce Chapman, who’s on the record as saying, quote: the evidence is now overwhelming that changes to the level of the charge, or other aspects of HECS-HELP, such as the first threshold of repayment, have no discernible effects on student behaviour or choices. This has been true for all Australian experience with HECS, including its introduction in 1989, when the cacophony of dire predictions about what would happen to the enrolments of women and ethnic minorities were the dominant noise, but nothing happened. In fact, of course, the reality, as we know, is that enrolments, including, happily, across different ethnic groups, social groups and women, has done nothing but increase in the time since.

Speaking of Bruce, and on a cheerier note, I do congratulate him on his receipt of the 2017 AFR Higher Education Lifetime Achievement Award, and concur with the AFR’s judging panel that HECS is a world-leading innovation in public policy which has stood the test of time. And with its hallmark of fairness, HECS has been able to expand access to higher education in an equitable and cost-efficient way.

Our reforms will ensure the ongoing viability of HECS-HELP, which across higher and vocational education carries a vastly higher exposure than when Bruce designed it. Lowering the repayment threshold for HELP loans will see students earning salaries of $42,000 pay a modest $8 per week at a new, lower minimum repayment rate of one per cent, while those earning the highest incomes will pay back their loans at a slightly higher rate. The viability of HELP is not only essential to guarantee future student access without upfront fees, it also underpins our globally higher levels of university funding.

Some have tried to bring the phrase more for less into the reform debate. One way that would certainly see more for less, including for taxpayers, would be to return to the pre-HECS world. If there was no HECS-HELP, and the Government was to contribute the equivalent of what universities received in 1989, they would be receiving some $4300 less than they currently do per student place. That is, base teaching funding would be 22 per cent less now if we had not achieved and sustained HECS-HELP, and in this world, taxpayers would be paying $2.4 billion extra per year for a comparatively more poorly resourced sector. That would certainly be more for less.

So, my challenge to the prophets of doom is to answer the question of what world would they prefer? If you want to maintain equity of access with no upfront fee barriers, then you should support our HELP reforms. If you want to maintain and expand the autonomy of a demand-driven model then you should support our budget sustainability reforms. And if you want to build student, government and community confidence in the demand-driven system then you should support our plans for some performance contingent funding.

Having 7.5 per cent of a university’s CGS funding contingent on performance measures is good for students. It will provide incentives for universities to do even more to improve rates of retention, completion, student satisfaction and employment outcomes. This is entirely consistent with university autonomy, because freedoms come with responsibilities and consequences. Surely, with engagement from universities, we can build ongoing confidence in their ability to enrol as many students as they want in the disciplines or courses that students choose, receiving guaranteed levels of funding for each student. Measures that ultimately get graduates into jobs – good jobs that lead to them paying back their student loans under one of the world’s most generous student loan schemes. That’s what this focus on performance is intended to do.

But I want to be absolutely clear, as I have been with the first announcement: performance measures will not be one-size-fits-all. We cannot, and indeed should not, compare outcomes from a metropolitan university enrolling high school leavers in the top ten percent of their cohort against those of a regional university focused on first-in-family and mature age students.

I also want to emphasise that this measure is a means of improving university quality. It’s not a savings measure. Any funding that may ultimately be withheld from an institution for not meeting agreed performance measures would be put back into the sector. None of it would come back to the budget bottom line. All of it is guaranteed for universities. At the time of the release, on 3 May, Regional Universities Network, said in a press release: the introduction of performance measures provides an opportunity for Government to incentivise a more place-based approach to university funding which recognises the role of universities as anchor institutions for the economic and social development of their regions. Rather than a stand-off at 20 paces, let’s work together – as the Government intends to – to develop fair and effective performance measures that strengthen a system we all support.

Speaking of strengthening the system, we should not lose sight of the fact that there are also a number of areas of our reform plan that many of you have supported which are aimed at better supporting students and delivering an even better higher education system: guaranteeing and better targeting the Higher Education Participation and Partnerships Program; establishing new regional study hubs; expansion of the demand-driven system to include sub-bachelor places; Commonwealth support for work experience in industry units to strengthen links with industry; and the introduction of a student-centred model for the distribution of postgraduate places, putting more choice in the hands of higher degree students.

As I said at this forum last year, I, for one, would rather confront our budget pressures honestly. I would rather confront them in the most measured way possible, which we believe this reform package does. Having listened and consulted about the options available, we believe that now is the time to act. I don’t expect my direct approach today will have me cheered out of this room to thunderous applause like some retiring footy hero. It would have been much easier to come in here today and talk enthusiastically about the work occurring to implement our International Education Strategy, which backs your incredible success you’ve had globally, or to talk about the development of the impact and engagement measures for research, which will help to fuel innovation.

But I’m not one to dodge difficult discussions, and I do hope that you will acknowledge the openness, honesty and truth in the arguments that I make, and that blanket opposition is not helpful, and that I’d much rather we may work towards an outcome that delivers certainty, not just for the next year but for the next decade, and provides the capacity for us to work on all of the other exciting opportunities that exist in higher education to build on what is a great system that provides enormous benefits to Australian students, international students, to our economy and our society, which we all want to see strengthen into the future.

Thanks so very much for the chance to be with you today.

[Applause]

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