This blog was kindly contributed by Professor Paul Wellings, Vice-Chancellor of the University of Wollongong (and a former Vice-Chancellor of the University of Lancaster) in response to the latest HEPI, report After demand driven funding in Australia: Competing models for distributing student places to universities, courses and students by Professor Andrew Norton.
For more than a decade, Australia’s policy settings for the control of bachelor degree student places have not been in cruise control. Andrew Norton’s paper provides an excellent and detailed analysis of how Australia’s demand driven system morphed into the current position. Furthermore, as he suggests, the 2017 freeze in numbers is not the first preference for most of the decision makers associated with the sector.
While the UK and Australian systems have much in common, there is a key feature of the Australian economy which generates unusual stresses. In the past 100 years the Australian population has grown from about 5 million to 25 million. It is expected to add the next 20 million citizens by the middle of this century. The key driver for growth is determined by immigration policy. This shapes the current annual population growth rate which is around 1.6 per cent per annum.
In contrast, the UK population growth rate is about 0.6 per cent per annum. One of the consequences of this strategy is the way it influences the demographic structure and creates knock-on effects on demands for public services. Adult immigrants often have children at the time of settlement and the location of their employment is usually in one of the major cities.
For higher education, this is important for two reasons:
- The demand for university places manifests itself relatively quickly as the average age of a migrant is around 15 years at the time of arrival; and
- The location of the demand is closely associated with the residential address of the student’s family.
These two factors work together to create a highly variegated pattern in demand across the continent. Demand varies from between zero in some locations to more than 4 per cent per annum growth in others.
The decision to uncap places, while maintaining control of fees, was a pragmatic way of dealing with the spatial variance in demand while creating opportunities for students from low socio-economic settings and those with different life experiences. As Andrew’s paper shows, there were far reaching consequences. The age participation rate, number of students in the system and participation by a range of equity groups all increased – with some universities and some subject areas growing dramatically.
All of this generated pressures for the Treasury as the forward budget estimates consistently underestimated the growth of the sector. The intersection of demographic patterns and the marketing power of universities resulted in a surge beyond expectations. This came to a head towards the end of the end of the last Labor administration with major cuts to the sector.
Since then there have been proposals to introduce a 20 per cent cut to public funding per student while maintaining the demand driven system. This failed to get political traction. It was followed by an attempt to impose an efficiency dividend. In the absence of a political consensus on the merits of this idea, government fell back to imposing a freeze on student numbers in order to reduce the pressure on budget outlays.
The transition back to growth in 2020 is now via the allocation of additional student numbers on top of the frozen 2017 position. This allocation is contingent on the application of a performance funding model (see: Reference 52 in Andrew Norton’s paper).
All these twists and turns leave many questions unanswered and much to be resolved. Another large wave of demand, assuming that age-participation is not reduced, is on its way as a result of population age-structure effects sweeping across the system. However, almost a decade after the introduction of the demand driven system, there are additional complexities that now need urgent resolution.
- The rapidly-growing population is causing some State Governments to invest very heavily in transport and associated infrastructure.
- Urban sprawl is beginning to generate a discussion about the merits of diversification into tier two cities and the regions.
- Rather like the earlier debates in the UK, there are questions about “cold spots” in university provision and the on-going asymmetry in opportunity for young people living in non-metropolitan Australia.
Andrew Norton’s paper points to a wide range of potential policy responses. It is hard to see that there will be rush back to the 2012 model of uncapped places and an open market for recruitment. Rather it seems more likely that Australian higher education will head back towards a system with something like compacts between individual universities and the Commonwealth Government.
This will give the central government a greater degree of control on budget expenditure while allowing an interplay between central planning and the articulation of institutional strategies. The outcome could address the pressures being felt by State Governments and go some way to resolving the question on the type of workforce skills required in all the regions around the country.
However, it will still leave open a similar debate to the one currently running in the UK: has the higher education system made sufficient productivity gains over the past two decades to justify the current patterns of public investment?