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Capping uni funding would be a lose-lose for everyone

Melbourne University’s Vice-Chancellor Glyn Davis has called on the federal government to reform the university funding system and allow universities to “decide their own student profiles within the funding…

Australia’s universities places are increasing rapidly but students could get caught between the universities and their budget bottom line. University image from

Melbourne University’s Vice-Chancellor Glyn Davis has called on the federal government to reform the university funding system and allow universities to “decide their own student profiles within the funding envelope”.

“Decide student profiles” sounds better than “restricting access” and “within the funding envelope” certainly sounds more agreeable than “cutting higher education funding” but they amount to the same thing.

If Davis’ suggestion is taken up by the government, there will be significant consequences with regards to who will be able to get into university and what they will be able to study. The current uncapped system, where there are no set limits on how many student places the government will fund, has many benefits, including increasing the supply of graduates to Australia’s economy, greater student choice, and improving access to higher education for disadvantaged groups.

Despite these significant achievements, the new Coalition government is looking to review the system. But returning to the previous, supply-driven model, where the total number of places was set by the government, would immediately curtail this progress.

Davis claims his proposal is not about capping places, rather capping funding. This means one of two things. Either the current student fees structure remains, in which case the result is the same (you say tomato, I say tomato). Or second, we move to full deregulation of fees in the sector to fund any future expansion of places.

The new proposal goes even further. Under the old system, the government not only controlled overall student numbers, but to some degree what courses universities could enrol them in. This is important: we need good government policy to ensure we get the right graduates at the right time. This is why previous governments have directed additional university places for nurses, or reduced the student fees for maths teachers.

In fact, previous federal governments have used their power in this regard far too lightly, which is why we are experiencing a surplus of law graduates, to take just one example.

Under Davis' proposal, the federal government would provide taxpayer money to universities without having any say over what courses they offered. But the Government will share the blame with the universities if the sector starts producing the wrong graduates. This being the case, it’s hard to imagine the Government making a rod for its own back.

Certainly, maintaining the current demand-driven system of funding does require the federal government to spend more on higher education than it would under a capped system — but let’s put this into context. As a percentage of GDP, Australia spends only 0.8% of its public funds on tertiary education, putting us sixth from the bottom in the OECD.

Australia needs to be spending more, not less, on higher education. We could also be more effectively recouping what we do spend, by establishing income contingent loans for international students and/or bilateral agreements with countries to recoup loans from emigrants in both directions.

The significant long-term economic advantages to increasing access to higher education are well-established and understood. People with higher education tend to have higher earnings and pay more income tax, which ultimately returns to the government. On average, OECD countries get more than three dollars back for every dollar they spend on public higher education. People with more education also tend to have better health outcomes.

Davis' proposal reveals the complicated nature of how higher education is funded in Australia. If it were a private good, then it would be for the universities and students between them to decide what courses to offer and how much they would cost. We would then get the economy and society some of us want but not necessarily what we all - as a nation - need.

If it were a public good, then it would have to be freely available to all and entry determined only on ability, not on ability and competition. Neither of these facts have ever been true. Higher education is an imperfect, or quasi public good. That didn’t stop previous governments from both sides of the political divide from enacting good public policy in this area, much of which has helped improve access and opportunity.

Rather than return to a capped funding system, universities should be exhorting the benefits of maintaining the current system. If any changes should be made, it should be to more strictly direct universities to enrol students in the courses that will give Australia the graduates it needs, when and where it needs them.