Comment

John Hewson
How to fix university funding

Now the election is finally over and the parties and candidates have settled down to their new realities, national priorities must be afforded their proper place. The election campaign focused too much on short-term offerings for voters – there was little discussion of what the respective leaders wanted our country to be in the coming decades. Specifically, no one was talking about increasing financial support for universities as an investment in the country’s future, despite the parlous financial state of several institutions.

Since the authoritative inquiry into higher education, the Bradley review of 2008, universities have been left to drift. The review was established by the Rudd government “to address the question of whether this critical sector of education is structured, organised and financed to position Australia to compete effectively in the new globalised economy”. It recommended widespread reforms to financing and regulatory frameworks, increasing the number of university graduates by more than one third, and determining university funding according to student demand using a voucher or entitlement system.

I have long been a strong supporter of vouchers, allocated on merit to students on the basis of their final high school grades – I took this proposal to the 1993 election. Back in my day many had to win a Commonwealth or teachers’ college scholarship to be able to attend university. That was in fact the only way I could do so, and it continued through my advanced degrees.

The voucher would cover the student’s desired first degree, assuming they met the relevant entry standards, thereby empowering them to choose where they wanted to study and driving the universities to meet the demonstrated demand. As such, it would also serve as a discipline on the universities. This is a mechanism for offering a measure of state-funded tertiary tuition. If we have free TAFE, why not free university?

Clearly the voucher proposal didn’t get the support of the then government. In time, the higher education contribution scheme (HECS) became the vehicle for financing a university education. HECS-HELP uses the clever concept of an income-dependent loan, where the student needs only to repay the loan when their income reaches a specified level. The drawback is that the level of outstanding student debt has become a significant political issue, tying in with the cost of living, intergenerational equity and so on.

One aspect of the Bradley review that particularly struck me was its finding that, even then, a significant number of our universities were financially non-viable. There were some subsequent considerations by the Gillard government of amalgamating some of the smaller institutions to achieve the necessary economic scale. While some of these had merit, they were not implemented due to the considerable cost.

The consequences are becoming clear, with top institutions struggling. A particularly disturbing response among some universities has been the desperate resort to hiring expensive consultants. Rick Morton has written two excellent articles recently on the situation at the Australian National University and University of Technology Sydney. Using Nous and KPMG, respectively, the senior management is seeking to run the institutions as “profit centres” – in the case of UTS, focusing their concerns on research revenue from academic staff and identifying “high risk” subjects from an earnings point of view.

Universities need to be concerned about their commerciality, especially when governments underfund them, and it is important to offer training for workforce participation. The real value of education, however, lies in the opportunities effectively trained minds will have to contribute to their own satisfaction and that of their families and communities and, more broadly, to civil society, to the overall benefit of our nation. Interest in merit and excellence has waned, when those two things should be fundamental to our way of life.

Another potentially powerful funding option for universities I have proposed in the past is based on the recognition that these institutions tend to be asset-rich but cash poor. They own a significant number of buildings they don’t need to and would be better off attempting to tap some of that value. A sale and lease-back arrangement would enable this – whereby the university sells its buildings to a newly created university property trust, for cash. The institution could agree to rent the buildings on terms that preserve their access to them as needed well into the future. The agreed rentals would simply need to constitute an acceptable return to the investors in the trust.

How our universities should be financed barely rated a mention in the election campaign. Instead, much time was spent focusing on the numbers of international students, in the context of cutting immigration. Foreign students were made scapegoats for the housing crisis, despite the fact they are fundamental to a truly dynamic higher education industry of both domestic and global significance.

The fact is, universities were forced to attract full-fee-paying foreign students because those institutions had been seriously underfunded for many years by successive governments of both persuasions.

Of course, there has been active debate as to whether international students over the years have taken the place of more domestic students, or helped to underwrite their education. However, it is clear that with the significant cuts in research funding, universities were forced to raid their education budgets to fill the gap. This is a devastating consequence of misguided politics that has threatened the main purpose of our universities.

As funding has tightened, so too has competition between universities, with the unfortunate consequence that many have shied away from specialisation in certain disciplines and are instead attempting to cover many fields. Without being unkind, their offerings often include too wide a range: a business school, a law school, some form of medical training such as a nursing school, natural sciences, economics, accounting and finance, computing sciences. This has resulted in an enormous variation in standards and significant oversupply in many fields that risks debasing the value of the degrees.

I recall in 2002 when I was engaged as dean of Macquarie Graduate School of Management, which predominantly offered MBA degree courses in Asia, I became aware of an institution in South Australia that offered a huge range of PhDs. They didn’t have the necessary expertise and this served to undermine the standing of a doctorate from our leading universities. Australia’s pool of expertise in many areas is still fairly shallow.

A particularly worrying aspect of the media-driven discourse on education has been the right-wing ideological campaigns targeting school curriculums. This thinking is a direct lift from what President Donald Trump has been attempting in the United States. Trump’s attacks on universities have escalated, with cuts to the funding of major universities, including a freeze on $2 billion of research grants and contracts at Harvard following its pushback against the government’s directives to eliminate diversity and inclusion programs and to screen students for anti-Semitism. Trump’s targeting of the US’s oldest university has only intensified, as his administration revoked Harvard’s ability to enrol international students – a quarter of its student body and a major contributor to its global reputation. A judge has blocked the order but the battle continues and, in the meantime, it’s likely to deter international students from applying.

Several universities and research organisations have been quick to point out to Trump the consequences of this behaviour. In the area of medical research, for example, it has been argued that every dollar of funding generates $2.56 in economic activity; funding of research in biotech and pharmaceuticals ultimately helps US competitiveness, particularly against China. Perhaps it’s expecting too much for Trump to realise these actions against American universities will work against his other objectives to boost industry and productivity.

This is politics at its worst and most ignorant, by a president of dubious academic achievement. It is even more disturbing that these attacks on universities coincide with serious cuts to research funding, leading many scientists and researchers to seek accommodation and support for their skills elsewhere in the world. Australian universities and research organisations should be sufficiently supported to seize the opportunity to attract some of that American expertise.

Looking to a better international model, I have always been impressed by the way Singapore, with the advantage of its location as a trading, refining and finance hub but little in the way of natural resources, has focused its economic growth and social development strategies on the value of education. The success of its transition from a relatively poor, racially divided nation in the 1960s to one of the leading global success stories today is instructive.

The Liberal Party is claiming now to be focused on a reset after its thrashing at the recent election. I suggest there is a clear option here: why not define the party by adopting education as the key focus, from early preschool right through to universities and higher education?

The proper structuring and funding of our university sector remains one of the most significant challenges for our nation. There are viable, workable solutions – the only thing missing is political will.

This article was first published in the print edition of The Saturday Paper on May 31, 2025 as "How to fix university funding".

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