Mistakes were made

16 April 2015

Failure of the deregulation package and the way ahead


The failure of the government to carry the Senate on its proposed higher education reforms can be put down to the government’s arrogance and heavy-handedness and what would politely be called its disingenuousness. Parts of the package were not without considerable merit – for example, extending public subsidies to the students of non-university higher education providers is a long overdue fairness measure and extending them generally to sub-degree programs could considerably improve retention rates. But overall, the package was seen to be poorly conceived and fundamentally flawed – certainly in respect of total fee deregulation.



Mistakes were made, not the least the mistake of poor judgement by the university sector peak organisations, which came across as unalloyed supporters of the deregulation package: education minister Christopher Pyne was able to trumpet that the package had the support of “40 out of 41 vice-chancellors”, the single dissentient seemingly being Stephen Parker of the University of Canberra. It was never quite that straightforward – Andrew Vann (V-C Charles Sturt University) was, initially at least, as stridently opposed as Parker. At the outset, immediately after the Budget, Universities Australia, for example, called for changes to the package and a careful working through of the detail; and quite a few vice-chancellors expressed concern.

By and large, however, it’s true enough that the key plank of the package – unfettered fee deregulation – had the broad support of the university sector. And at the end, the various university organisations were pleading with the Senate crossbenchers to pass the package.

Universities are many things, including advocates of the public interest. In this case, they seem to have lost sight of this traditional role and became advocates of their sectional interests. Sector leaders now readily admit that, whatever its initial flaws, the package as it ended up was clearly a dog’s breakfast. It would have provided a short term money fix, at great social cost and to the medium term detriment of the budget. It would have had to been soon revisited and the whole debate about “sustainability”, “fairness” and everything else would start all over again. Yet until the last gasp university leaders continued to broadly support it.

Universities are admittedly between a rock and a hard place. With declining public funding of higher education per student – the Abbott government’s proposed cuts merely continued a process initiated by the previous Labor government – the burden was always going to fall on students to replace lost public funding and provide a “sustainable” funding base for the future. And, more so than any previous government, the Abbott government has been bullying, hectoring and apparently vindictive, although in its next manifestation, it promises to be kinder and more inclusive. Yep.

So, what next?

Education minister Pyne has indicated that there will be some kind of “fix” in the forthcoming budget (12 May) and he will have a third attempt to get a “reform” package through the Senate. Goodness knows what that fix might but there would have to be something around moderating fee proposals to make the package palatable to the crossbenchers.

The Group of Eight appear steadfastly wedded to the modalities of the original package. In its “official response” to the second rejection of the package in March, it said:

For the past three years, the Go8 has consistently stated that the current funding model for Australian Universities is “broken”. It is for this reason that we have just as consistently supported the proposal for the deregulation of higher education fees as the only long term sustainable solution on offer. In the absence of another solution the Go8 continues to maintain that view.

Its concession to navigating such a package through the rocky shoals of the Senate is to propose not another root and branch review (“Higher education is already one of Australia’s most reviewed sectors.”) but “a de-politicised process” of review – what it is now calling a “pause” in the reform process. This would presumably enable calm and mature reflection on the subtlety and implications of various proposals now on offer to placate the market naysayers. However, the Go8 is not enamoured of such proposals. The supremely calm and subtle Glyn Davis (V-C Melbourne University) appeared to be stating the corporate view when he wrote recently that all these proposals rest on the same idea:

….deregulation will be acceptable only if constrained. Whether fees are limited by regulation or held down by complex, subtle mechanisms, universities apparently cannot be trusted with setting prices and must be controlled.

Quite so. The short answer to that would be that if you take the Queen’s shilling, you do the Queen’s bidding.

And, yes, many within the sector and the broader community believe just that: deregulation will be acceptable only if constrained.

One such mechanism proposed by higher education policy gurus Bruce Chapman and Dave Phillips is progressively “taxing” fee increases, so that, for every dollar that a university charges above a set fee threshold, it would lose a proportion of its total government subsidy. This would depend very much on where fee thresholds were set and the amount of subsidy that would be lost for exceeding each threshold. According to Chapman, the question as to whether or not universities should be constrained in their capacity to set fees is essentially an ethical one:

… if it is the case that fee revenues from price deregulation exceed considerably the costs of teaching, it is arguable that this is an improper use of a government instrument; basically put, it can be considered to be unfair. This then promotes a case for considering “excessive” fee increases in a space which economists label “negative externalities”, or, broadly speaking, as costs borne by us all, in this case because of the presence of an unreasonable/unfair use of policy power.

Chapman said that while it makes sense to allow different universities to charge different fees he strongly believed that unfettered fee deregulation is a recipe for disaster:

I’ve always thought it is unreasonable to give these quasi-private institutions because that’s what universities are if they have the power to charge whatever price they like the luxury of HECS, which would make considerable price rises inevitable.

Another alternative is to put a cap, pure and simple, on fees, sufficient to notionally allow some fee variation so-called “managed deregulation” (though experience here and overseas suggests any variation wouldn’t last long) . This is the position consistently argued by Janet Kristjanson, (V-C, Swinburne University of Technology) and latterly taken up by Peter Dawkins (V-C, Victoria University). She has suggested that, instead of totally deregulating fees in one go, the government could start slowly, with a new maximum cap, to reassure Australian students and their parents that fees wouldn’t reach the frightening levels some are predicting. A sensible upper limit on annual fees would take scary numbers like $100,000 off the table, keep potential fee rises within bounds the public may accept, and therefore make progress politically possible.

There’s also clearly the option to not deregulate fees in any material way whatever. A point implied by Stephen Parker is that while universities are obviously constrained by current funding arrangements, that doesn’t make them impecunious or anywhere near it. He says that if the public maintains its current level of contribution and universities work hard to bring down their cost base free up resources through careful planning of the system rather than letting market forces rip, the argument that the continuing sustainability of the sector without fee deregulation is nonsense.

In an indirect way this is supported by Andrew Norton (Director, Higher Education Program, Grattan Institute), who is an advocate of fee deregulation. In Norton’s assessment, even without fee deregulation, there are reforms in the package worth pursuing of themselves, particularly extending the public subsidy to both sub-degree programs and to students at non- university higher education providers. He says that “it would be a great shame if trying to achieve too much meant that we achieved nothing at all.”

He’s particularly concerned that the demand driven system might be dumped, as an alternative to fee deregulation and to contain the burgeoning growth in HECS (FEE-HELP) debt.

Which leads to the opposition. The Greens are implacably opposed to fees, let alone fee deregulation. Labor is not opposed to fees but is opposed to fee deregulation – and after losing office did a remarkable volte face on cuts to higher education which it had proposed when in government. Circumstances obviously change.

There’s serious concern that Labor’s solution might be to reintroduce caps on enrolment. As Conor King of the Innovative Research Universities puts it, Labor’s alternative to fee deregulation might be to dump its signature achievement in higher education while in government:

Labor is now at the point of walking away from one of the few unchallenged policies of the Rudd-Gillard Government and from the essence of the Hawke Government achievement in doubling school retention and expanding universities. It is the Gillard changes that have seen sustained growth in the number of science and technology students, and slowed growth in law students, despite his contrary assertion. Student demand is more attuned to employment potential and apparent future demand than the previous allocation system.

The X Factor in all this is Nick Xenophon – just one voice in the Senate , but undoubtedly the “first among equals” for the crucial cluster of independent senators who have decided the matter (senators Lambie, Muir, Madigan and Lazurus, in addition to Xenophon). He favours the “pause and reflection” period now championed by the Go8, he acknowledges that some degree of fee deregulation is necessary in the absence of additional public funding but he doesn’t support unfettered fee deregulation.

In the absence of further manic and bizarre behaviour by the education minister, that’s probably where it will end up: a “pause” as the options are weighed and, by the end of the year, some form of managed fee deregulation system.

After what transpired through the first two go’s at reform, that would be something of an achievement for the government.

Brendan Sheehan is the editor of The Scan and, among other things, a Senior Fellow of the LH Martin Institute.

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