Many university people must have found media reports and commentaries on last week’s Budget confusing. None yet offer clear answers to the key question: how much funding support can the university sector expect from the Commonwealth, between now and 2024-25?

With borders largely closed into 2022, the main threat to sector revenue remains our lack of access to global markets. According to Universities Australia, in 2021 we’ll see at least a further $2 billion loss in international student revenue on top of a $1.8 billion loss in 2020, compared with 2019 revenue.

One thing is clear: the Budget spending forecasts offer very little to offset this. Last year’s additional $1.5 billion COVID emergency funding was not repeated this year. And many suggest too that (as if to add insult to injury), the Budget papers reveal government plans to reduce the level of funding. In most media reporting and commentary, the “vibe” of the Budget outlook seemed immediately clear.

But will overall funding for higher education actually decline? As the sample of commentaries below shows, the answer is not simple. And to date, most commentary has focused only on specific elements of direct Commonwealth (grant) spending, not the full picture.

A report in the Australian Financial Review put it this way: “There is no budget relief for a university sector ravaged by steep declines in international students and saddled with a new funding regime that will see domestic student revenues decline … An estimated $7.6 billion in commonwealth grants in 2021-22 will fall to $7.1 billion in 2023-24 before rising slightly to $7.27 billion in 2024-25.”

The graph in an early tweet on Budget night highlighted the bad news on teaching grants.

Source: Andrew Norton, 11 May 2021.
https://twitter.com/andrewjnorton/status/1392068726762065925

From Budget night onward, social media snapshots made big funding cuts the “bottom line” headline. In turn, the mainstream media story from that week on was a funding decline of 9-10% over the coming years, despite looming international revenue shortfalls.

Source: Andrew Norton on Twitter and LinkedIn

A report in the Canberra Times put it this way: “Universities face more financial pain as federal funding is slashed and international students are barred from entering Australian until mid-2022 … Higher education funding will decrease by 9.3 per cent in real terms over the forward estimates to 2024-25.”

Reporting in The Guardian put it this way: “Tuesday’s federal budget reduced funding for universities by nearly 10% over the next three years … Funding will drop by $741m next financial year, from $11.37bn in 2020-21 to $10.63bn in 2021-22, before a further $387m reduction the year after.”

Source: https://budget.gov.au/2021-22/content/bp1/index.htm

Also in The Guardian, Australian National University vice-chancellor Brian Schmidt put it this way: “while the university sector is grateful for the funding we have, approximately $10bn for higher education over 2021-22, this is not new money and there’s been no increase to research block grants.”

In The Conversation, University of Melbourne experts Frank Larkins and Ian Marshman put it this way: “The 2021 federal budget has largely ignored the plight of Australian universities. The forward estimates even point to an overall decline, once adjusted for inflation, in Commonwealth direct funding for higher education through to 2023-24 … The injection of an extra $1 billion of emergency research funding in 2020-21 was most welcome … The crisis has not passed, but there is no additional research support for 2021-22.”

Also in The Conversation, Australian National University professor Andrew Norton put it this way: “The main recurrent programs for teaching, research and equity are stable at around $11 billion a year from the 2020-21 financial year through to 2023-24…”

So: will we see a 9% or 10% cut in overall funding over 3 years? Or steady-state funding eroded by inflation? Will Commonwealth grants fall to around $7 billion in 2023-24? Or be around $10 billion in 2021-22? Or stay flat at around $11 billion per year until 2023-24?

Despite appearances – and despite what we see in the Budget Paper 1 figures above – the short answer here is: none of the above. As a perspective on how government spending relates to the university sector’s ongoing revenue crisis, figures like these tell half the story. If presented on their own, they leave readers close to clueless about the wider revenue implications.

One clear clue to this issue is the contrast between the figures that have featured in media and social media commentary and the Budget speech, where Treasurer Josh Frydenberg referred to “more than $19 billion in funding for our universities in 2021‑22”. Another point of contrast is with Education Minister Alan Tudge’s comment in media reports, that current spending sits at over $20 billion. And another, with former Education Minister Dan Tehan’s pandemic “relief package” in April last year, which guaranteed the $18 billion already committed if domestic students also stopped enrolling in 2020, along with international students.

The essential but invisible context here is that total sector revenue in 2019 exceeded $36 billion. That year, international student fees added $10 billion to the $17.8 billion universities received from the Commonwealth, in grants and loans (see Chart 5 below).

A problem for those analysing and reporting on higher education spending is that the Budget papers don’t present any single summary of annual cash flows to the sector from all Commonwealth funding sources. As well, some higher education funding items are reported under other government portfolios.

In his blog post on the Budget, Andrew Norton highlighted these issues. He then mapped the underlying trend outlook for future grant spending on teaching, research and equity programs. This was based on assembling a long list of line items. His blog post notes that this attempt to provide a clearer picture results in slightly lower grant totals than in the Budget figures, for which some estimates and assumptions are unknown.

In Chart 1 below, he showed how total recurrent grants amount to around $11 billion until 2023-24 (if we exclude last year’s one-off COVID responses – mainly the extra $1 billion in research funding).

Chart 1. Source: https://andrewnorton.net.au/2021/05/14/the-budget-and-higher-education/#more-6125

Other media reporting has focused on direct grants for teaching and research (usually taking 2020-21 as the relevant baseline). The problem with this is that HELP loans are far less visible than they should be, given the scale of their impact on university budgets.

In The Conversation, Norton suggested that “To work out what this number might be requires us to reconcile figures that appear in different budget documents. These suggest a government estimate that just under $7.6 billion will go towards HELP loans in 2021-22.”

Seen against Chart 1, Chart 2 below (also taken from Norton’s blog post) illustrates how Budget reporting masks the real volume of university sector revenue from Commonwealth HELP loans.

Chart 2. Source: https://andrewnorton.net.au/2021/05/14/the-budget-and-higher-education/#more-6125

As Norton notes, the Budget summary outlook: “significantly understates Commonwealth assistance for higher education … The difference is money lent through the HELP loan scheme … this is likely to become the single largest source of funding for higher education, as international student revenues collapse and the Commonwealth Grant Scheme stagnates.”

Norton doesn’t present a table showing the $19 billion referred to in the Treasurer’s speech. But a rough approximation can be assembled. In Charts 3 and 4, I’ve taken Norton’s grant figures, and replaced the “HELP subsidies” seen in Chart 1 with the government’s “cash used” estimates for “advances and loans”. These appear in the fine detail of the 2020 and 2021 Budget papers.

On this view, the total 2019-20 Commonwealth funding figure is still slightly less than the $17.8 billion seen on the Education Department website for 2019. And the 2020-21 figure is lower than the $20.4 billion the Education Minister cited in media reporting.

Chart 3. Data sources: Andrew Norton analysis May 2021 and
Education Portfolio Budget Statements 2020-21 and 2021-22

Chart 4 presents the broad revenue sources behind the totals seen in Chart 3. Here HELP-related cash spending in 2021-22 is slightly higher than Norton’s $7.6 billion estimate.

Chart 4. Data sources: Andrew Norton analysis May 2021 and
Education Portfolio Budget Statements 2020-21 and 2021-22

Overall, Charts 3 and 4 look like better Budget news for university revenues than the 10% funding cut widely inferred from the Budget’s headline figures in Budget Paper 1 (above).

Chart 4 indicates that direct grants for teaching will remain flat over the forward estimates, as many have noted. But here the Budget also indicates that HELP loan revenue will rise steadily – enough to more than offset any decline in grants.

The other point to note about Chart 4 is that the Budget also assumes that soon, domestic students will meet well over half the (public financing) cost of domestic places in university courses. As a result of last year’s Job Ready Graduates funding reforms, many future graduates will face larger HELP debts.

My rough reckonings here are consistent with what we heard in last week’s Budget speech. They offer a still imprecise, but more realistic picture of the sector’s overall Commonwealth revenue outlook for the next few years.

Afterword

(Post updated, late May)

In any area of public policy, facts matter. But even among parliamentarians who debate and legislate policy, confusion and misinformation on university sector funding seems rife. This was apparent in a televised exchange between a government Minister and a Greens Senator on the panel of last week’s special Budget episode of the ABC’s Q+A.

JANE HUME (Minister for Superannuation and Women’s Economic Security)

“You know, we actually had record enrolment in university this year, around 800,000 people are now in universities. And not only that, but we’ve seen more people enrol in those STEM subjects … They’re up by more than 10% …

LARISSA WATERS (Greens Senator)

Speaking of 10%, that’s the amount that higher education got cut from it in Tuesday night’s budget.

JANE HUME

That’s not true.

LARISSA WATERS

It is true. It is true.

JANE HUME

That’s not true. That’s not true, Larissa … There was an extra $1.5 billion … that was given to universities last year, specifically to cope with COVID. That has been removed, but funding for universities has consistently gone up every year, year on year.

LARISSA WATERS

You have cut it since you’ve been in government every year.

JANE HUME

That’s not true. Every year, it has gone up.

LARISSA WATERS

In fact, sadly, the previous government made cuts as well. The tertiary sector has been cut for years…”

(end of transcript)

In reality, both public and private spending on higher education have risen substantially over the past decade or so. The mix of spending programs is not simple: HELP loans are both a public revenue source for institutions and a private “targeted tax” for individuals. But they are crucial to any policy debate about university funding.

Too much Australian commentary promotes the unexamined myth about Commonwealth funding: grants are great, but HELP’s no help at all. Those who want informed policy debates about university funding should at least be clear on the basics. For this, the Education Department’s financial reporting (snapshots below) is a good place to start. The sector’s total Commonwealth funding (HELP included) rose from $13.3 billion in 2011 to $17.8 billion in 2019. And by then international student fee income had boomed to $10 billion, up from $4.1 billion in 2011.

Chart 5. Source: Dept of Education, Skills and Employment

In turn, the sector’s assets have ballooned, from less than $55 billion in 2011 to over $90 billion in 2019. Property, plant and equipment assets alone, valued at just under $36 billion in 2011, rose to just under $56 billion in 2019.

Chart 6. Source: Dept of Education, Skills and Employment

That’s the big picture for this year’s Budget outlook. In simple terms, as I outlined in the Australian Financial Review in May last year, Australian universities have seen strong growth in public financing for over a decade; and even stronger growth in offshore student revenue until the 2020 disruption:

“Over 2002-2018 university sector revenue doubled to nearly $34 billion. So did government grants for teaching and research, to $12 billion. So did domestic fee income (mainly HELP loans), to $7 billion. International fees grew fourfold to nearly $9 billion…But suddenly, as Shakespeare has it, “our revels now are ended”. Having enjoyed a long boom the sector must weather collapsing enrolments and fee income prospects “melted into air”…”

In 2021 the sector’s and government’s task remains: to survive the tempest and plan for more sea-change.

(Post updated, late June)

After posting my rough reckonings of the May Budget here, I wrote to Education Minister Alan Tudge about the range of media reporting on higher education spending. The response from the Department of Education, Skills and Employment in June put it this way:

“Australian Government funding to the university sector is at a record high. Since 2019, total funding to the higher education sector has increased from $17.3 billion to $20.4 billion in 2021, an increase of more than 18 per cent in just two years. The Government is also providing a one−off boost of $1 billion to the university research sector in 2021 to maintain the capability of Australian research during the COVID−19 pandemic. That additional research funding ceases in 2021−22, which accounts for the decrease in higher education funding as shown in the budget. If that additional funding is not included, these decreases effectively disappear.”

4 thoughts on “May Budget mystery: will higher education spending rise or fall?

  1. Really excellent analysis here Geoff, and vastly more useful than almost anything I’ve read elsewhere. It’s rather sad that it isn’t more widely read.

    As you’d be aware, most universities are now gearing up for another round of enterprise bargaining, with the associated wage claims. Whilst it is obviously unrealistic to pay the 12% (flat) to end 2024 that the union is claiming, I also suspect that the university line that there is nothing to pay is likely to be unreasonable. In over 30 years in the sector I’ve never seen anyone anywhere ever suggest that their university was adequately funded, or even barely coping with its funding needs; this even during the extraordinary boom period running at least since the late 90s.

    I’d love to know what salary uplift you believe HE staff should reasonably expect to receive. But perhaps it’s unfair to ask you a question like that, since I doubt that anyone can really answer that in anyway other than an arbitrary one. My betting is on settlements averaging around 1.5%pa, with perhaps flat rate rises of around $1,600 to $2,000pa (which are worth a touch more than 1.5%) for staff on less than around $100,000pa.

  2. Thanks for reading Peter. I don’t have much insight to offer on enterprise bargaining, other than the obvious point that revenue shortfalls from fewer international enrolments have already led to job losses, so salary increases pose further risks to jobs – despite many staff working longer hours to cope with pandemic and budget related challenges. Very tough times for all concerned.

  3. Actually Geoff, you do offer insights, for me at least. I’m probably not playing fair by asking you to speculate on outcomes, and I apologise for that, but I’m feeling much better informed in my own speculations by your work.

    One thing I’ve learned is that the connection between pay rises and jobs in the sector is very non-linear, and unexpected outcomes can occur. The sector has hit its first major downturn in staffing numbers since the “Vanstone cuts” in the late 90s, when we were working at the same place in fact, although I’m dubious that this time there’ll be a rebound of the sort we saw for the following twenty years. The 90s cuts now look like useful pruning that allowed for excellent vigorous new shoots.

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