Australia’s university funding freeze will chill the knowledge economy

Australia used have some of the very best policy positions in the world for the support of higher education.

In 1974 – the year I was born – prime minister Gough Whitlam introduced free university education, with bipartisan support. It sparked only a modest expansion of participation, but, importantly, it empowered everyone to advance themselves through education.

Then, under Bob Hawke in 1989, higher education minister John Dawkins oversaw the introduction of a clever policy to provide better value for the taxpayer. It recognised that both the individual and society benefit from higher education, so ought to share the cost. The introduction of student loans meant that this more appropriate funding mechanism didn’t impact on participation.

Twenty years later, Julia Gillard accepted a seminal recommendation of the higher education review conducted by former University of South Australia vice-chancellor Denise Bradley: that 40 per cent of all Australians between 25 and 34 years of age should have a bachelor’s level qualification by 2020. To accomplish that, all who could attend university on merit should be enabled to do so. This was the beginning of the so-called demand-driven system.

It’s not a bad policy. It says that human capital is worth investing in, for the creation of a globally competitive smart economy. But it hasn’t quite achieved its aims. As you might have noticed, 2020 is now upon us. Yet my state, South Australia, is currently tracking at 31 per cent participation – and Queensland, the Northern Territory, Tasmania and Western Australia are all in a similar position.

The ratio of government to individual contribution was designed to vary by subject, according to cost, graduate salaries and perceived importance. For business, the government contribution covers about 16.5 per cent of the cost, whereas for engineering it covers 69 per cent.

We had an unexpected wobble in 2014 as Christopher Pyne, who was then minister, attempted to introduce tuition fee deregulation. If it succeeded, this would have provided a sustainable funding base for higher education, but would also have signalled a significant policy shift away from the demand-driven system because unregulated fees and uncapped numbers would inevitably have led to calls to rein in the cost to the taxpayer.

Pyne’s measures were not adopted, but the demand-driven system was ended anyway, in late 2017, by another South Australian education minister, Simon Birmingham, as part of measures intended to secure A$2.2 billion (£1.2 billion) in budget savings. In effect, public funding for demand-driven places was frozen at 2017 levels for 2018 and 2019 enrolments, and into the future. So if a university’s student population grows, it no longer gets any additional government funding.

There are a couple of ways you can deal with this. You can cap your intake: stop allowing equal and fair access to higher education long before – in our state – the 40 per cent target has been achieved. Or you can game the system by enrolling more than your cap in law and accountancy, the subjects in which students pay the biggest proportion – 83.5 per cent – of the cost of their degrees. In a state with 6 per cent unemployment and identified skills shortages in areas that do not map to law or accounting, that would be irresponsible.

We know that we urgently need more engineers and technologists to deliver a sovereign capability in defence and aerospace, building on existing government policy to grow these industries over the next five decades. It is true that the demand-driven system didn’t drive growth in engineering enrolments: after an initial increase, the subject saw three successive years of decline after 2014, before an uptick in 2018. But the system didn’t inhibit growth either. It enabled the delivery of engineering degrees through appropriate funding.

Now, under the cap, every additional engineer enrolled above the cap is funded at just 33 per cent of the cost. Australian universities are not-for-profit organisations, but at least one in five posted deficits in the past financial year. So the current policy strikes at the heart of Australia’s economic progress by shutting down the pipeline of talent that will make new industry possible. After all, if universities are prevented from developing people with greater skills and knowledge, who will?

Moreover, universities are also responsible for stewarding the largest service export industry in Australia: international education. So the domestic funding policy also risks irreparably undermining one of the cornerstones of the wider Australian economy.

We must stop thinking about a homogeneous 39-institution sector and embrace differentiation. That’s hard to contemplate, and even harder to do. But, without exaggeration, the “one size fits all” approach to funding universities is putting the viability of the Australian higher education sector at risk.

The academy must now act to advance the case for sustainable and focused tertiary-level funding in science, technology, engineering and mathematics. We cannot build a knowledge economy under the current ridiculous constraints.

David Lloyd is vice-chancellor of the University of South Australia. This article is based on an address he gave after being awarded membership of the Australian Academy of Technological Sciences and Engineering in October.