The Post-Secondary Sector - Cooperation and Competition
Cooperation
The AVCC vision for the 21st Century requires closer cooperation,
as well as healthy competition, between the sectors (universities,
schools, the vocational education and training (VET) sector, and
particularly technical and further education (TAFE)) to improve
the choice and quality of educational opportunities for Australian
students. Closer links between the sectors will also enable Australia
to develop a consortium approach to its "off shore"
international activities (and probably its "on shore"
international activities as well) and enable it to bid for international
multi-million dollar projects which have a range of education
and training requirements. Because of the diversity which exists
within the sectors, some universities will be better suited to
the TAFE interface and some TAFE institutions will be more in
tune to working with a university than others.
There is a number of factors, however, which currently prevent
enhanced cooperation between TAFE and universities. There is a
general lack of recognition by TAFE of prior university qualifications
in its admission processes. There is no national system of credit
accumulation and transfer which would enable easier movement between
TAFE and universities to improve the diversity of choice of educational
opportunities for students. The OECD Thematic Review of First
Years of Tertiary Education Australia notes there is increasing
interest in double university-TAFE awards and that such combinations
could be considerably extended through improved links with the
TAFE sector and closer articulation of university-TAFE programs.
Ramsey comments that TAFE trained computer graduates are in high
demand. If such a course was combined with an arts or science
degree, graduates may be more attractive to employers. Further,
that similar cases could be made for business studies, laboratory
technology, accounting and highly specific technical skills in
the engineering area.
There is also reliance on the tertiary entrance ranking method
for in particular, school-leavers as a means of admission to universities.
Scaling practices impact on student choices and pathways to post-secondary
education. Alternatives or adjuncts to the ranking systems which
draw on the abilities and qualities of students should be extended
to include other relevant assessments and predictors of student
performance for those wishing to undertake undergraduate university
programs. While some universities are trialing graded assessment
systems which could enhance cross sector mobility, in general,
competency based training (CBT) assessment used by TAFE instead
of graded assessment inhibits flow between the sectors.
Competition
Healthy competition between universities (public and private)
and other educational providers (VET including TAFE) can also
improve the range of educational opportunities for all students.
While traditions are important, the AVCC takes the view that,
if facilities, teachers and resources are available, it is hard
to see why any sector could not offer programs which are the traditional
territory of another sector. The programs, however, are likely
to be offered in a way which is distinctive to the particular
sector and should be distinguished as such, that is, sensitive
to the particular skill requirements of industry in TAFE and embracing
the wider cultural context and reflective approach in universities.
This will serve to increase the diversity and flexibility of offerings
to Australian and international students. Each sector will market
its own individual strengths and compete on the national scene
for students. Universities will market their high quality niche
services including:
Recommendation 11:
The AVCC recommends that there should be better cooperation
between universities and TAFE through:
(i) developing a coherent and workable national system of credit
accumulation and transfer for both directions;
(ii) facilitating admission processes to universities and TAFE
by extending the ranking system to include other relevant assessments
and predictors of student performance for those wishing to undertake
undergraduate university programs; and
(iii) exploring alternatives to competency based assessment
used by TAFE.
This does not mean each sector will not wish to market its
distinctive edge: with TAFE sensitive to the particular skill
requirements of industry and universities enhancing a wider cultural
and reflective approach.
National Competition Policy
It is clear that the application of some of the principles of
the National Competition Policy the (Competition Code and the
Competitive Neutrality Principles) to universities is quite complex.
The Competition Code, in particular, potentially prohibits conduct
which is likely to lessen competition in a market.
The activities undertaken by universities (both commercial and
non-commercial activities), are directed towards their core community
service objectives of providing high quality scholarship, teaching
and research. Their activities cannot be classed neatly as either
commercial or non-commercial. Rather there is a spectrum of closely
related activities. At the non-commercial end, there is the community
service obligation of universities which is encapsulated in the
Higher Education Funding Act, 1988 (HEFA).
At the commercial end of the spectrum, there are the activities
which will be adjuncts to non-commercial functions carried out
by universities. For example, fostering links between universities
and industry is quite central to achieving the objects of HEFA.
The cost-effectiveness of applying some aspects of the Competitive
Neutrality Principles to universities must be questioned. Universities
are examining aspects of their operations to reduce costs. In
many cases, outsourcing the provision of non-core activities will
meet the objectives of Competitive Neutrality.
Universities are being encouraged to find higher levels of their
funding from non-Commonwealth sources such as those outlined above.
The paradoxical result could be that as universities are required
to be more self-sufficient in their outlook in response to cuts
in Government funds, the Government might, as part of the application
of the Competitive Neutrality Principles, remove their tax exempt
status, thereby penalising the very behaviour the Government wishes
to encourage. The Government's revenue might or might not benefit,
depending on the higher education system's response; universities'
revenue clearly would not.
The cross fertilisation of commercial activities with their core
activities is vital for the survival of most universities, particularly
in times of cuts to operating grants, reductions in staff numbers
and the need to find salary increases within their reduced budgets.
Removal of the tax exempt status would result in fewer resources
available for teaching and research. This is strongly opposed
by the AVCC, unless the Government provides compensatory additional
funding.
Recommendation 12:
The AVCC recommends:
(i) the Review note that universities are taking the implementation
of National Competition Policy seriously. They are examining aspects
of their commercial operations to see if any of these are contributing
to a lessening of competition in the market place. Most universities
have developed or are in the process of developing codes of practice
to guide the implementation of National Competition Policy within
their operations; and
(ii) that universities retain their tax-exempt status except
in circumstances where the Government agrees to increase core
funding to a level which fully compensates for the loss of tax-exempt
status.
B7. THE REGULATORY ROLE OF GOVERNMENT
Funding and Administration
The AVCC draws to the attention of the Review Committee the mix
in funding and administration arrangements for post-secondary
education. Existing funding and decision making arrangements are
based largely on historical evolution rather than on a strategic
approach to post-secondary education. Each State holds legislative
control over its universities while (since 1974) their recurrent
and capital funding has been the responsibility of the Commonwealth.
In addition, the States have responsibility for VET and provide
about 70 per cent of funding with the Commonwealth providing the
remaining 30 per cent.
The mix of roles and responsibilities of governments (State/Territory
and Commonwealth) can have a healthy influence on the development
of the sectors. Both levels of government have a vital interest
in education, particularly higher education. State Governments
are concerned that the universities should reflect individual
State policies and priorities. For its part, the Commonwealth
has a responsibility to ensure that funds are allocated in line
with overall national goals and priorities, having regard to competing
demands of different states, regions and universities.
The AVCC would be concerned if decisions taken by individual State
governments were to impact on the viability or good management
of universities within a particular state. Concern is also expressed
about the duplication of reporting between State/Territory and
Commonwealth authorities which flows from such a mix of responsibilities.
Examples exist in the areas of financial reporting required by
some State governments, the ABS Survey of Financial and Source
Liabilities where universities are still classified under State
Whole of Government reporting, and the reporting that universities
as employers are required to carry out. It is expected that the
issues of duplication of reporting will be addressed in the DEETYA
Review of University Reporting Requirements.
While the AVCC sees no prospect for changing the relative roles
of governments (State/Territory and Commonwealth) in the funding
and administration of the post-secondary sectors, it believes
that the issue should be kept under review as the sectors evolve.
Concerning the issue of entry to the market for higher education,
the AVCC considers the sector probably has a sufficient number
of institutions to cater for the growing needs of the Australian
population for higher education. It would be more efficient and
effective for the Commonwealth to expand the existing system to
cope with the growth in demand for university level education
rather than creating more higher education institutions and thereby
replicating expensive infrastructure such as libraries and laboratories.
Regulation
The AVCC fully acknowledges the need for universities to be properly
accountable for the public funding provided by the Commonwealth
to enable universities to perform their missions. However, the
Government in its vision for a more strategic alliance with universities
(Higher Education Quality: Diversity and Choice) undertook
to reduce bureaucratic interference and government red tape, to
set the broad objectives and priorities for higher education,
to enhance the autonomy of each institution and to be less prescriptive
in relation to the expenditure of public funding. It is hoped
that serious consideration will be given in the DEETYA Review
of University Reporting Requirements, and any other future review
processes, to the unnecessary complexity and regulation as evidenced
by the increasingly detailed guidelines, accountability and reporting
requirements issued by the Commonwealth.
Advisory Structures
The AVCC's views on the ARC and the Higher Education Council (HEC)
were detailed in its response to the Minister's August 1996 Discussion
Paper. In summary, the AVCC has no wish to see the return of a
Commonwealth Tertiary Education Commission structure which had
responsibility for program delivery as well as policy development.
It has argued that any body established by government to provide
advice on the operation and future direction of the higher education
system should be so constituted that it is independent of both
government and universities, has clearly defined functions and
has an obligation to report publicly. The AVCC proposed that the
HEC be constituted as the body responsible for providing broad
policy advice directly to the Minister on the general development
of higher education in Australia. It also proposed that the ARC
should be responsible for providing advice to the Minister through
the HEC on broad policy matters relating to research, but direct
to the Minister on the distribution of grant funding and on policies
relating to its programs.
Recommendation 13:
The AVCC:
(i) sees no immediate prospect for changing the relative roles
of the Commonwealth and State/Territory Governments in the funding
and administration of the post-secondary sectors but it believes
that the issue should be kept under review as the sectors evolve;
(ii) believes serious consideration should be given in the
DEETYA Review of University Reporting Requirements and, any other
future review processes, to the unnecessary complexity and regulation
as evidenced by increasingly detailed guidelines, accountability
and reporting requirements issued by the Commonwealth; and
(iii) recommends that any body established by government to provide advice on the operation and future direction of the higher education system should be so constituted that it is independent of both government and universities, has clearly defined functions and has an obligation to report publicly.
C. FINANCING
C1. Objectives and Current Funding Context
Objectives
The principle aim in applying resources to universities in Australia in the 21st Century will be to improve the international standing and competitiveness of the Australian higher education sector. This will be achieved through the successful implementation of the following objectives:
Current Funding Context
In determining the absolute level of resources which Australia should provide for higher education over the next 10-15 years, it is important to look at the current funding context for higher education as depicted by the following key figures.
In 1997, Commonwealth resources available to higher education institutions are about $5.5b. Income from overseas sources primarily tuition fees by international students exceeded $600m (est) in 1996.
At 31 December 1996, the accumulated HECS debt was about $4.3b.
Government Outlays on Final Consumption Expenditure for higher education as a percentage of GDP have fallen from 1.06% in 1983-84 to 0.92% in 1994-95.
In 1997, base operating grant funding per planned EFTSU is $10,937 (a fall of 8.2% from 1983 level of $11,915 and of 1.6% from 1988 level of $11,117).
Year 12 retention rates rose from 57.6% in 1988 to 71.3% in 1996.
Participation rates in higher education were 37 per 1000 head of the 17-64 population cohort in 1985 and had increased to 54.6 by 1996.
In 1996 there were an estimated 16,000 students who were unable to obtain a Government funded undergraduate place.
The ABS projects a population increase for the 17-19 year old group. This is likely to lead to increased levels of demand for higher education courses from this age group from 1998.
In 1995, university operating revenue for 40 higher education institutions (before abnormal items) by source was:
| Commonwealth Government Grants | 57.2% |
| HECS | 12.0% |
| Fees and Charges | 11.7% |
| Investment Income | 4.0% |
| State Government | 1.4% |
| Donations and Bequests | 1.1% |
| Other Sources | 12.6% |
| Total | 100% = $7,535.7m |
C2. Overall Level of Resources
The future scenario for Australia's international competitiveness
is bleak unless our universities can maintain a position of international
leadership, or at least, of comparability with present developments
in higher education in both developed and newly developing nations.
As noted in earlier parts of this submission, the AVCC is recommending:
A significant injection of resources in higher education is required
and is justified by both international and historical comparisons
to achieve our vision for higher education in the 21st Century.
In determining the ideal level of investment in higher education,
the AVCC is fully aware of the competition which exists for limited
Government funding and the unwillingness of governments to increase
taxation. It is acknowledged that new funding sources to supplement
that provided by the Government must be developed.
It is clear that a long term vision about the nation's overall
investment in higher education is required. A goal should be set
for the absolute level of resources which Australia should provide
to the sector to achieve the objectives and to realise the vision
for the role of Australian universities in the future.
The AVCC proposes that the level of resources which Australia
should invest in higher education from all sources should reach
2% of GDP by the year 2010. Current investment in higher education
from all sources is estimated at 1.65% of GDP comprising: Government
Outlays on Final Consumption Expenditure for Higher Education
0.95%; income received through HECS 0.2%; and income received
from all other sources 0.5%.
Recommendation 14:
The AVCC recommends:
(i) that the level of resources which Australia should invest
in higher education should reach 2% of GDP by the year 2010; and
(ii) the Review Committee note that in determining this goal
for investment in higher education, the AVCC recognises that responsibility
for funding higher education is, and should continue to be, shared
between the Government, students and other beneficiaries.
C3. Sharing the Responsibility
Government
Need for continued Government Support
Government support for public universities is justified to meet
the educational, social, economic, scientific, cultural and political
objectives of the nation. It is in the national interest to build
an internationally competitive knowledge-based economy. This can
only be achieved through the production of highly trained and
educated university graduates whose skills, knowledge and expertise
can control and inform the decisions of industry, Government and
the professions. The economic case for continued public funding
of the universities is that the benefit to the public would not
be fully captured if the higher education system were to be driven
solely by private funding.
In contributing to national development, public universities undertake
the broad roles of teaching, research, research training and community
development, which justify the provision of public funding.
To survive and prosper, Australia needs the benefits which come
from having a workforce which is technologically sophisticated,
globally focussed, multi-culturally aware and analytically and
imaginatively equipped to face the challenges of continual change.
The benefits of having a better educated workforce apply to all
Australians and not just those who attend universities. Loading
more costs onto students and their families will have the inevitable
result of reducing the number of students going to university.
Consequently, this will result in an under-investment in the intellectual
capital that is needed for this country to prosper.
The argument that public benefits would not be fully captured
if overall university funding were to be dominated by the private
sector applies equally to research undertaken in universities.
Universities require a significant contribution by Government
because of the deficiencies of the market. The level of research
and development required to keep Australia internationally competitive
is of such a scale and effort, and requires such a large minimum
investment threshold, that it would not be profitable for industry
to undertake all such activity. Moreover, industry, particularly
small to medium sized business enterprises, has shown an unwillingness
to invest in basic research in Australia. Research is an investment
in the future. Research contributes to the health and welfare
of society and contributes to our quality of life and standard
of living.
Universities also play a strong role in serving communities in
metropolitan and regional areas. This role is likely to increase
in importance as the demand for continuous learning increases.
Regional universities, in particular, contribute greatly to the
economic, social and cultural development of their localities.
They are important for regional growth and for providing greater
access to higher education for rural students.
Universities contribute to national needs through the provision
of access to their physical (libraries, equipment and facilities)
and intellectual (staff knowledge and expertise) resources for
individuals and employers in the community who are seeking new
or continuous learning and re-skilling.
Government Funding Level
Given the arguments to justify public funding of universities,
it is of particular concern to the AVCC to note the decrease in
base operating grant per EFTSU (8.2% since 1983). This erosion
of funding comes at a time when, simply to keep pace with advances
in knowledge, the "sophistication factor" in science
and technology and the increasingly competitive world of international
higher education, greater investment is required in relation to
the level of activity rather than less. In the short term, the
Government should restore some of the present reduction in the
public contribution per EFTSU and should plan for a return within
the next few years to, as a minimum, the 1988 levels of funding
per student.
Figure 2 shows, in constant end-December 1997 dollars per EFTSU,
the change from 1983 to 1999 of Government outlay on universities'
base operating grants and the net Government outlay (base operating
grant minus HECS receipts). The figure demonstrates the significant
extent to which private HECS contributions have reduced the requirement
on Government to self-fund the higher education system in the
last decade.
The total resources currently expended on universities as a percentage
of GDP are approximately 1.65%. This includes 0.95% of GDP which
is expended by the Government. The AVCC believes the Government
should adopt a longer term aim to increase the level of Government
Outlays on Final Consumption Expenditure of Universities to 1.15%
of GDP. As highlighted in Section A, other countries in the region
are increasing the investment in their education systems in the
belief that this is the key to their economic success and to higher
standards of living.
Universities will continue to raise additional funding through
increased entrepreneurial activities and interaction with industry
but the need, and strong justification, for an increased Government
contribution is undeniable. In the short term it is essential
that, after noting the return to the Government through actual
HECS receipts, there be no further decrease in the net average
Government outlay per university student. Re-investing in universities
the increased HECS revenue, resulting from the 1996 Federal Budget
changes, should enable the Government to actually increase the
net average outlay per student.
The AVCC recommendations are consistent with the policies of the
present Government during the election. In its Policy Statement,
the Government strongly criticised the earlier decline in real
Government funding per student, promising to restore funding levels
while encouraging universities to improve their funding through
increased private earnings.
Recommendation 15:
The AVCC recommends that:
(i) the Government continue to provide financial
support for public universities to meet the educational, social,
economic, scientific, cultural and political objectives of the
nation. The benefits to the public would not be fully captured
if the higher education system were to be driven solely by private
funding;
(ii) the Government should restore some of the present reduction
in the public contribution per EFTSU, and should plan for a return
within the next few years to, as a minimum, the 1988 levels of
funding per student;
(iii) the Government should reinvest the increased HECS revenue
in universities to contribute to increasing the international
competitiveness of the higher education system; and
(iv) of the 2% of GDP target for total resources for higher
education, the Government should aim to increase its Outlays
on Final Consumption Expenditure of Universities to 1.15 % of
GDP by the year 2010.
Australian Students
The AVCC accepts the proposition that the additional private benefit
which accrues to university graduates justifies some level of
direct contribution by these beneficiaries for the costs of their
education. On equity grounds, the AVCC considers that the HECS
system of deferred payment is the best mechanism for these charges
to be levied. Notwithstanding this, however, the AVCC believes
that there must be reasonable limits to which HECS payments cover
the costs of education and that these limits probably have now
been reached.
Australian university education has evolved over time as neither
free nor cheap compared to many other countries. The annual average
fees (based on the middle HECS category plus the amenities fee)
paid by Australian students is now higher than the price charged
for home-state students in the US. The average costs per annum
of a place in an undergraduate course in an Australian university
is now AUD$4960 compared to AUD$3620 at an American State university.
Were the costs of Australian university education to rise much
above present levels, especially if there were also to be a change
to the up-front payment of HECS, many potential students and their
families simply could not afford the higher cost of a university
education or would be understandably hesitant about incurring
the resultant HECS debt. If these students are not subsidised,
access to higher education would be fundamentally inequitable.
While it is perhaps reasonable to expect mature aged students
seeking to upgrade their skills and improve their career potential
to pay relatively higher contributions, the AVCC believes that
the Government should contribute higher levels of funding for
school-leavers undertaking an undergraduate course and for those
continuing through the system as postgraduates by research.
The AVCC argues, therefore, that it will be contrary to both the
national interest and equity of student access, to further increase
the percentage contribution through HECS which is derived from
university students and graduates. The effects of the increased,
differential HECS charges, announced in the 1996 Federal Budget,
are clearly going to take some years to emerge. As noted under
B1, the introduction of the differential HECS is likely to have
most impact on low demand, higher cost disciplines such as science
and engineering. It is essential that a study be undertaken to
determine the capacity of students to pay these increased costs
for their higher education out of future income. In particular,
such a study needs to address what capacity, if any, would remain
for students to fund any postgraduate study which is an increasingly
important consideration in the highly educated society Australia
will need in the future. Currently HECS income amounts to about
0.2% of GDP. The AVCC sees no justification for increasing the
level of the HECS contribution from students in the future.
Recommendation 16:
The AVCC recommends that:
(i) it will be contrary to both the national interest, and
to equity of student access, to further increase the percentage
contribution through HECS which is derived from Australian university
students and graduates; and
(ii) the effects of the increased, differential HECS charges
should be reviewed prior to any further changes to the HECS mechanism.
External Sources - Other Beneficiaries
Employers of highly skilled and trained graduates clearly have a competitive edge, through the benefits reaped from their present or past relationship with universities and/or their ability to access a pool of people with know-how and expertise. There is growing acceptance by the community that increased funding amounts should be required from employers (eg through cadetships/scholarships, payment of HECS debts), alumni, the professions and industry. Industry has indicated its willingness to consider the provision of cadetships in certain areas to ensure that they are obtaining staff with the required high quality training, to expand work experience programs and to consider other means of developing vocational skills in graduates. Other sources of income which universities obtain, to varying degrees, include:
- collaborative research and consultancy projects with the private sector;
- overseas students fees;
- industry funded undergraduate places and Joint Commonwealth-Industry funded places;
- external sponsorship of professional chairs and academic programs;
- funds from overseas sources; and
- privatisation of research centres to foster entrepreneurialism
and increase revenue generation.
The national goal for higher education over the next twenty years
is for there to be growth in funding from external sources which
is at least commensurate with the growth in the level of funding
provided by the Commonwealth. This relationship would see the
contribution from external non-Government sources rise from 0.5%
to 0.65% of GDP.
Recommendation 17:
The AVCC recommends that, of the 2% of GDP target for total
resources for higher education, the contribution from external
sources (excluding Australian students through HECS) should rise
to 0.65% of GDP by the year 2010.