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Speech

Australian Financial Review Higher Education Summit

4 April 2007

The Australian community has high expectations of the university sector in this country.
It is expected to provide students with a quality education -

• One that will equip them with the skills necessary for the jobs and workplaces of the 21^st century.
• Skills that employers acknowledge and are relevant and valuable.

Universities are expected to create new knowledge that will underpin Australian innovation and global competitiveness.

Universities should be accessible to eligible students whatever their background.
They should be accountable to the taxpayers who sustain them, and transparent in their operations.

And universities are expected to foster economic growth.

The second Inter-generational report released by the Treasurer this week reaffirms the pivotal importance of education in an individual’s participation in the workforce, which in turn is a determinant of the nation’s future economic productivity and growth.

The Australian Government higher education policy agenda has been based on the four pillars of quality, sustainability, equity and diversity.

There are some great stories to tell under each pillar. There are some disappointments.
But there is certainly a need for more reform.

And there are plenty of opportunities for greater achievements by our higher education sector.
With regard to quality, the reputation of our higher education sector can be evidenced by the record numbers of foreign students studying at our educational institutions.

Education services has grown on the back of this reputation to now be our 4^th biggest export, providing more than $10bn to our economy each year.

Neither the sector nor the Australian Government take this for granted.

Considerable effort is devoted to upholding the highest standards and quality.

On the domestic front, for example, the Australian Universities Quality Agency’s greater focus on outcomes in its second round audit cycle will further assist the promotion of quality.

On the international front, the Education Services for Overseas Students Act is a world leading legislative framework to protect student rights and ensure they get what they pay for.
With regard to sustainability, there are two major reforms of the higher education sector which will continue to impact on the sector in coming years – Backing Australia’s Future and Backing Australia’s Ability.

These reforms are just past their mid point – as they are 10 year action plans.
The Government’s Backing Australia’s Future reforms are building a sustainable sector that will see it $11 billion better off over the decade to 2011.

Backing Australia’s Ability is an $8.3 billion, 10 year science and innovation program from 2001 to 2011.

Through these reforms and subsequent announcements, the Australian Government is providing around 50,000 additional Commonwealth supported places by 2011.

Over the period 1996 to 2007, the Australian Government has invested around $76 billion in the higher education sector.

This year alone, the Australian Government is providing $8.2 billion to the sector, a real increase of 26% since 1995.

The sector now has net assets of $25.7 billion and $13.9 billion in annual revenue.

Our universities record surpluses, no longer deficits.

By any measure the sector is in a strong financial position than at any other time in recent history.

With regard to equity, there are record numbers of students at Australian universities.

The numbers of eligible students seeking, but unable, to get a university place is now negligible by historical standards.

Some universities are having difficulty filling places, some are returning places for reallocation to areas of higher demand.

The ‘more places, more places’ mantra is now but a memory of the early 1990s.

Offers to school leavers were up 5.6% nationally this year with 91.4% of all school leavers who applied for a university place receiving an offer.

Our student contribution scheme has enabled record numbers to access university with no upfront fees, and interest free loans that are income contingent, making it one of the most equitable schemes in the world.

OECD data shows that Australia’s public support for students in tertiary education through allowances and loans amounts to 0.4% of GDP, well above the OECD average of 0.25% of GDP.

As to diversity, universities must continue to pursue excellence through diversity, otherwise their fate will be mediocrity.
Universities must move away from the ‘one-size-fits-all’ model of the 1980s and 1990s.

I will continue to support universities pursuing excellence through diversity wherever and however that is found.

That is why we have invested $36 million in the CASR fund from 2005-07.

$134 million in the WPP.

$250 million in the learning and teaching performance fund and
Added an additional $95.5 million in the capital development pool fund in last year’s Budget.

The quest for diversity underpins my support for the Research Quality Framework which I want to see drive quality and diversity in the sector.

We are providing $42 million to the sector for the cost of setup and trials.

More than ever, we operate in a highly contestable, global marketplace – a marketplace not just for students but for academics and researchers.

Our well-earned international reputation for the quality of our education will be maintained if our universities are responsive and flexible in meeting new challenges, including greater demands from students and employers.

They must be efficient and fleet of foot.

That is why we need a focus on a fifth pillar of higher education policy – good governance and efficiency.

The Government is committed to less red tape, less regulation and greater flexibility for our universities – in financial administration, in business management and in workplace arrangements that are suited to 21^st century work practices.

At the OECD forum on the future of higher education last year, fellow education ministers highlighted six factors as the principal components of good public governance: accountability, transparency, efficiency and effectiveness, responsiveness and forward vision.

The Business and Industry Advisory Committee to the OECD in a separate statement to last year’s OECD forum said that “Good governance should serve as the parameters for good management of academic institutions. Just as mismanaged companies cannot flourish, higher education institutions cannot fully meet the needs of their stakeholders if they are mismanaged.” The need for improved governance and better management of universities is obvious. Universities have a responsibility to demonstrate to taxpayers that they are efficient and well governed. Without strong governance, how can those funding them – the taxpayers and students, businesses, philanthropists and alumni – have confidence that their funds are being put to good use?

The sector needs to continue its governance reforms so that taxpayers can be assured that the institutions - in which they are effectively shareholders - are being run efficiently.

Current arrangements – the legacy of the 1974 Whitlam reforms, cause more red tape and inefficiency than anyone in the sector is prepared to admit.

The Commonwealth took over from the States all funding responsibility but the States retained the powers of establishing universities, accreditation and audit, and the States impose an endless list of reporting requirements including information on operations, finances, superannuation liabilities, detailed budgets, performance indicators, risk management, OH&S, and management of commercial ventures, to name a few.

Let me put a scenario to you.

The NSW Government appoints its own nominees to a university senate, vetoes nominees that are not in accordance with its political bias, takes from the university $4.5 million more in payroll tax than it invests, subjects the university to compliance with at least two dozen State Government Acts, has its auditor carry out audits of the Commonwealth funding which comprises 68% of operating revenue, and then refuses to match Commonwealth funds for the construction of a medical school at the university to train doctors to be employed by the NSW Government in rural NSW, even though it had committed to the arrangement at a COAG meeting last year.

Is it fair and reasonable for the University of New England or any other university to be subjected to this?

Until this historical anomaly with the States is rectified, universities will continue to be subjected to unnecessary red tape and unacceptable levels of regulation from State Governments, which profit at the expense of universities to the tune of $150 million each year in payroll tax alone. In my address to the National Conference on University Governance last October, I indicated that there was still a lot of work to be done to improve governance in the higher education sector.

Since then I have written to state and territory Ministers identifying the areas where I consider that the National Governance Protocols should be strengthened, including:

• Reducing the size of governing bodies from 22 to 14 members;
• Limiting the terms of members to 12 years;
• Requiring governing bodies to adopt a range of best practice approaches, including strengthening fiduciary responsibilities of members.

There is nothing to stop universities from embracing these changes now, and some universities are doing so, but it is certainly not uniformly the case.

Many of the new generation of Chancellors have told me they are ready to embrace more sweeping governance reforms.

Smaller, more dynamic governing bodies with more appropriate expertise would make a significant difference to the decision making ability of universities.

Members of Senates appointed for their business or financial expertise tell me of their frustration at sitting through lengthy meetings with 20 or more members endlessly debating minutiae with no decisions being taken, let alone strategic decisions.

Universities not only need to be well governed – their administration must be efficient and observe best practice.

At last month’s annual conference of the Australian Higher Education Industrial Association I suggested that streamlining administrative processes, improving financial planning and implementing more efficient procurement practices could potentially produce significant cost savings which could be directed back to the core functions of universities – research and teaching.

I was surprised to learn that some universities lack basic business practices, for example not having a contracts or procurement register and not being able to tell to whom or where their money is being spent on a whole range of services.

In the first round of the Workplace Productivity Programme in 2006, I approved $60 million in project funds to achieve these types of business improvements.

Universities made nearly 100 submissions for funds to increase the efficiency of their operations – many were targeted at strengthening leadership and governance performance, reforming human resource practices, deploying new technologies, and sharing resources between universities.

And while I welcome the enthusiastic support for the program, the individual applications revealed a disturbing lack of action in what should be considered fundamental areas of operations.

One of those projects is assessing procurement practices at 30 universities, and given the feedback I have received from a number of auditors and consultants who have looked at procurement practices, I am surprised this work has not been undertaken by universities before.For example, consultants working with one university have ‘found’ $35 million that is being ‘wasted’ through poor practices and processes.

There are many examples of dozens of people being employed to reconcile invoices from across the university because of a failure to put in place coordinated and coherent purchasing policies.

Following an efficiency audit, one university found that its practice of transferring non-performing administration staff into its asset management team had resulted in that team growing to 250 people. As a result of the audit the university has reduced that to 50, but admitted this was still far in excess of needs.

Some estimates of non-salary savings across the sector as a result of more efficient practices are in the order of $450 million.

These sorts of savings should be redirected to ensuring that universities can attract and retain the best academics and researchers, after all our institutions are judged on the quality of the education they offer.

I have called for applications for round two of the Workplace Productivity Programme with a further $74 million available this year.

Essentially, the Australian Government is funding universities to change age-old practices that simply cannot be sustained in a highly competitive global market.

I have announced the first two tranches of the review of the Higher Education Support Act – cluster funding and pipeline arrangements.

Further elements of the review will be announced this year.

In making the case for more funding, our universities need to ensure that governance arrangements are further improved and that universities can assure their stakeholders that the significant investments that are being made are being utilised effectively - through efficient business practices.

In return for the greater confidence that this will bring, longer-term funding arrangements for example can be considered, which may provide the sector with more certainty and flexibility in terms of places and costs.

Australia deserves a diverse and dynamic higher education sector – ours could be the envy of the world.

With confidence in the effective management of our universities, business, governments, students and alumni will continue to invest in the future of the Australian higher education sector.

And I would like nothing better than a robust, well managed and self regulated higher education sector where universities did not need to turn to government to determine the parameters of their operations – set their directions, influence their workplace arrangements, dictate their board size, and point out that if you want a decision-making body you must put decision makers on it.

If universities commit to the five pillars of quality, sustainability, equity, diversity and good governance and efficiency, they will be world class players in the global education market.

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