Why we sometimes have to rob Peter to pay Paul

Critics have called it “incoherent” and “schizophrenic” [1].

It sounds alarming on its own, but the Federal Government’s $2.3bn proposed cuts to funding for tertiary education is not the be-all and end-all to signing off David Gonski’s school funding deal. And while less spending money is never a good thing, opponents of the funding cuts are sounding the alarmist gong too soon.

This week Labor announced its $14.5bn National Plan for School Improvement, referred to simply as the “Gonski deal”. The Labor Government plans to pay for $9.4bn, of which $2.3bn will be taken out of tertiary funding.

The proposed three-part cuts:

  • An efficiency dividend for university funding, of 2 per cent in 2014 and 1.25 per cent in 2015;
  • Removal of the 10 per cent discount on paying university fees upfront and the 5 per cent bonus received for voluntary repayment of HELP debts; and
  • Conversion of student start-up scholarships into a loan, repayable along with students’ university fees after students are earning a specified level of income. [2]

Three potentially problematic consequences have been raised in the media, but not all are warranted.

Firstly, that changes to the start-up scholarship will deter disadvantaged students from enrolling, including those with low socio-economic status (SES) and from regional areas.

Here is why I think this is unlikely.

The scholarship grants, in the sense of financial help, would not disappear for those currently eligible under Youth Allowance, Austudy or ABSTUDY (as of April 2013). They would instead be given equivalent Income Contingent Loans totalling up to $2050 per year [3] on a need-basis, which is the same amount that all eligible students currently receive [4].

The grants would however be deferred to loans which would have to be paid back after graduation, but only after a certain income threshold is reached. If the point of a university education is to equalise future incomes for students of different socio-economic backgrounds, then I have difficulty seeing how these changes will hugely disadvantage low-SES students (assuming that most graduates pay off their HECS debts in later years without input from family).

Which leads us to real threats two and three – the increased risk of defaulting on student loans combined with the decreased provision of university services and quality tuition.

This danger is already looming, but not only as a result of these cuts.

Since changing to a demand driven model for higher education in 2012, enrolments for bachelor degrees have been uncapped, with the addition of 146,000 extra Commonwealth-supported places from 2007 to 2013 [2] (no data available for the relevant period 2012-2013).

More students in universities means higher costs of education provision for host universities as well. An estimated extra $400 million in university funding from $6.5bn in 2012 to $6.9bn in 2013 [5] would be necessary to offset this increased outlay, but the Government is planning to commit only $41.6 million from 2012-16 [6] after an average saving of $300 million from the efficiency dividend per year. Unless the Government is prepared to let the quality of higher education suffer, the difference will have to come from students and families (some disadvantaged, as we know) in the form of higher tuition fees. If anything, this is the prospect we should be worried about.

What cannot be digested within media circles, political and academic communities is this notion of transferring funding from one education sector to the other. “Robbing Peter to pay Paul”, independent Andrew Wilkie [1] calls it. But we should hardly be surprised by these downward policy changes.

Yes, this is the sign of desperate cost cutting. Yes, this is a restructuring of the education sector. Economics is the allocation of scarce resources, and as economist Judith Sloan put it, “the reality is that Australian universities have recently enjoyed a stretch of salad days … governments need to make decisions about the allocation of scarce taxpayer funds to achieve the highest net social benefit.” [1]

We are only seeing the start of budget savings plans – if the Gillard Government can convince us that Gonski is worth it, then tertiary funding won’t be the only head on the chopping block. And given the controversy over just $2.3bn of the $14.5bn funding scheme, I’ll be waiting to see how they plan to get the rest of the money from.

Gillard has until June 30 to remodel the Gonski plan after it failed to pass through the Coalition of Australian Governments (COAG) on April 19.


[1] “The government is losing the battle on cuts”, Matchett, S, April 2013, The Australian

[2] Statement on Higher Education Minister for Tertiary Education The Hon Craig Emerson MP, April 2013

[3] Income Contingent Loans from 2014, Higher Education Savings Announcement Q&A, Australian Government

[4] Changes to Student Start-up Scholarship, Student Income Support Reforms 2012 Q&A, Australian Government

[5] Higher Education Budget Review 2012-2013, Parliament of Australia

[6]Commonwealth Grant Scheme (CGS), Budget Paper 2012-2013, Australian Government

3 thoughts on “Why we sometimes have to rob Peter to pay Paul”

  1. As far as I know, the State leaders failed to reach an agreement on the plan, so it isn’t set in concrete yet. But Monash University alone is set to lose something like 50 million in Federal funding under the current scheme, and that’s most likely to be cut straight from the least profitable university services: student support and other “optional” services like student counselling, health services, clubs and societies, and tuition and all that. Either universities pass the increased costs on the students (which student unions would raise hell about), or they cut the services (which student unions would raise hell about).

    The ironic thing about all this? ESSA, which seems to be so understanding of these cuts (all merit aside), would likely face the same cuts in student support as any other student organisation.

    • Hey Oliver,

      You’re right, nothing is set in concrete yet. (Which means that Labor’s going to look more than a little silly retracting the tertiary funding cuts proposal if/when the Gonski package doesn’t go through – the least of its problems though).

      My best guess would be that, taking into account the increasing costs from uncapped placements, universities may have to do both – raise fees AND cut services. However this is not something that Gonski started. If universities are indeed facing rising costs (and let’s not forget the $1bn cut during the Mid Year Outlook last year) which they are, then they’re already thinking about fee-raisin and service-cutting as it is.

      By uncapping places the government has allowed increased access of disadvantaged students to university. These means more start-up scholarships being utilised, and so from an economic point of view it makes sense to start reining in the costs of these scholarships before it completely explodes. Yet because the scholarships are for ‘textbooks and specialised equipment’ they really should be placed on HECS-HELP instead of made in the form of welfare payments. I think the shift of education towards HECS-HELP and away from welfare is completely reasonable.

      By the way, these opinions expressed are mine completely and not ESSA’s, as is the ‘understanding of these cuts’, as mentioned in the disclaimer above.

      • Also, I wouldn’t worry too much about ESSA-its corporate sponsors appear plentiful and generous ;)

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