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Education and Employment Legislation Committee
09/10/2014

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NORTON» , Mr Andrew, Private capacity

CHAIR: Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. The committee has your submission. I would now like to invite you to make a short opening statement, after which committee members will be free to ask you questions.

Mr «Norton» : I am the higher education program director at the Grattan Institute, although I am appearing in a personal capacity today. My submission was really a pragmatic one, accepting that certain elements of the package do not look like they are going to get Senate approval and focusing on those that still might and some of the possible consequences of different mixing and matching of the reform package. I really wanted to emphasise the extension of the demand driven system to the sub-bachelor places and the non-university higher education providers.

Given the focus of critics of deregulated fees as a negative equity measure, I think we need to look at the positive equity measures which are in the package, particularly around sub-bachelor places and, flowing from that, the non-university providers. The sub-bachelor courses really deal with particularly educational disadvantage but there is also the correlation between educational disadvantage and social disadvantage that makes it important from a low-SES point of view as well.

At the moment, a lot of people taking pathway courses are paying fees that could easily be double what you pay at a public university once you take into account the FEE-HELP loan fees. So it is very, very expensive to take the pathway option. But going directly into a bachelor degree has a high risk of failure. At the moment we have a situation where about 14 per cent of the full fee-paying undergraduates are low SES compared to 17 per cent of the Commonwealth supported places. So there are remarkably similar SES profiles but, to the extent that the package does not result in extension to the sub-bachelors, it is effectively saying a whole lot of low SES people should be paying full fees.

The other thing I wanted to emphasise is that the package in some ways is designed to fit together, but if you let in the non-university providers at this lower funding rate without deregulating fees what I think we would find is that very few of them would end up going into the system. That is just based on an analysis of the fees they already charge and looking at how many of them could match or get close to matching their revenues on a lower total Commonwealth rate. My view is that, if the fee deregulation does not get supported but the extension of the demand driven system does, you would need to look at the maximum student contributions for the non-university providers to ensure that a reasonable number of them saw it as viable to enter the system.

Senator KIM CARR: Can I just come back to an article that I saw in The Australian this month. It purports to present your views. We all understand the perils of relying on The Australian when it comes the question of reflecting views—

CHAIR: Particularly your views, Senator Carr!

Senator KIM CARR: I do not see your views in there often enough to make a judgement. Perhaps I will ask Mr «Norton» a question instead. Mr «Norton» , the way I read the article is that it was proposing that this is your view. It says that:

THE Abbott government’s university reforms may go the way of the carbon tax—hugely compromised and ultimately ditched by a new government, a conference in Melbourne heard yesterday.

Policy expert Andrew «Norton» said that Labor’s opposition to the government’s reform agenda meant that universities would be “completely mad”—

they have 'completely mad' in quotation marks, so I presume that is accurate—

to make major changes to their business model given that the legislation could be “ripped up” by a new government.

Is that article an accurate reflection of your views?

Mr «Norton» : I do not recall any discussion of carbon taxes, but certainly the point I was making at that conference was that one of the goals of this reform is to encourage higher education providers to do different things and to expand in different ways. If they think there is a high risk that will not continue past, say, 2017, the word 'mad' is wrong but certainly it would be imprudent of them to make a major change to their business models.

Senator KIM CARR: Are you suggesting the most of this package will not succeed?

Mr «Norton» : I think we have had a majority of senators say they are not going to support fee deregulation—

Senator KIM CARR: Or the funding cuts.

Mr «Norton» : or the funding cuts or the interest rates.

Senator KIM CARR: What is the core of the package that will survive?

Mr «Norton» : I am still hoping the reforms to the demand driven system will. They have not received much attention from the crossbenchers because all of the attention is on fees.

Senator KIM CARR: I will let you know that we are not supporting that change because it is directly associated with budget cuts. In the last election I proposed the formation of university colleges to deal with this issue of pathways, which is an inadequacy in the current system. Were you aware that that was the case?

Mr «Norton» : I do recall that.

Senator KIM CARR: You would be aware, though, that this measure is directly associated with budget cuts.

Mr «Norton» : My view is that, if there has to be a trade-off, it is better to slightly reduce the spending per student and spread it over a larger number of people. Politically this would all be easier if it could be done like when we extended the current rates, but that always seemed unlikely given the overall budget position.

Senator KIM CARR: It was a question of costs, if my recollection serves me correctly. The demand driven system is for a finite period. It was not indefinite; it was for a finite period until the targets were met. The targets have largely been met or are on the road to being met. Would you agree, Mr «Norton» ?

Mr «Norton» : There was a goal of 40 per cent attainment, but I do not recall any statement that it was to terminate at that point. It is not in the legislation, anyway.

Senator KIM CARR: It is not in the legislation but it is associated with the targets; would you agree?

Mr «Norton» : I was not convinced the targets had any legislative capacity other than—

Senator KIM CARR: I do not think they do. It was the government's stated intention to lift the level of participation. Is it the case that in the south-east of the country there is largely no unmet demand?

Mr «Norton» : There is no unmet demand at the higher levels of ATARs. The 40 per cent target is something which I do not think had any science behind it. It could be too high; it could be too low.

Senator KIM CARR: What do you have to say about the equity target?

Mr «Norton» : My concern there was the potential for it to encourage universities to enrol students who were probably better off considering some other alternative, such as voc ed. That was the only reason I had reservations about the low-SES target itself.

Senator KIM CARR: The participation rates for low SES have improved.

Mr «Norton» : Yes.

Senator KIM CARR: My information is that just under 17 per cent of undergraduate students are from low-SES backgrounds. But participation did improve by the better part of one per cent, would you agree—

Mr «Norton» : Low-SES participation has been growing pretty quickly. The demand driven system has very much worked for that group.

Senator KIM CARR: But there was also a significant investment there through HEPPP, the equity program, of nearly $1 billion. That program's important component is increasing the level of participation from low-socioeconomic groups, isn't it?

Mr «Norton» : In the demand driven review, we concluded that there was enough evidence to say that it probably was. But we are actually not yet seeing the effects of it in the low-SES enrolments because it is mostly directed at younger school students.

Senator KIM CARR: I acknowledge that the ambition is to achieve a 20 per cent undergraduate student load from low SES by 2020. Remember, that was the policy objective. There has been an improvement of about one per cent, and that compares with the overall participation rates, which went up from about 31 per cent through to nearly 37 per cent for the 25- to 34-year-olds. Would that be correct?

Mr «Norton» : The overall attainment rates have been influenced by international migrants, but generally the system is basically doing exactly what the government intended in 2009.

Senator KIM CARR: That is right. And for women the target had already been reached. Would you agree?

Mr «Norton» : Yes.

Senator KIM CARR: This is a target that was supposed to be met by 2025. So there had been substantial change in the system, but the issue, in terms of the demand driven system, was: what was the purpose? Participation rates, particularly for low socioeconomic groups, or higher numbers of Australians getting a university degree, was the target. That has pretty much been met. Would you agree?

Mr «Norton» : For women it has definitely been met. For men, it is still quite a way behind.

Senator KIM CARR: I make it at around 37 per cent at this stage. Would you disagree with that number?

Mr «Norton» : I do not have the figures to hand but I thought it was lower than that. Once you take internationals out of the numbers it goes down.

Senator KIM CARR: Does it? The figures—which I was given, I might remind you—were that in 2012 it was 36.8 per cent. Do you dispute that?

Mr «Norton» : I am not disputing it because I would need to double check it.

Senator KIM CARR: I would ask you to do that, if you would and if you have the time. The issue of what is the purpose of government policy really ought be considered pretty carefully. And in an inquiry such as this, surely that ought be a matter that we give some attention to. In regard to the acquisition of that number of people, was it directly tied to government investment?

Mr «Norton» : The target?

Senator KIM CARR: Sorry?

Mr «Norton» : The government investment was just flowing on from the inevitable consequences of increased enrolments.

Senator KIM CARR: The government's expansion was actually a bit more. In real terms it went up quite significantly—

Mr «Norton» : In some of the older age groups the government's investment is not having a big impact. This is the pipeline effects of previous graduates.

Senator KIM CARR: I agree; the pipeline effect is true. But was it the case that in regard to the demand driven system the government provided an additional $5.7 billion from the period 2013 to 2016, and $3 billion in indexation? Is that true or not true?

Mr «Norton» : I do not know exactly. There was a very substantial increase in government spending under the previous government on higher education.

Senator KIM CARR: Can we see that part of that is a consequential increase in the number of people participating in the system?

Mr «Norton» : Absolutely. And this will flow through to attainment rates over the years.

Senator KIM CARR: That is right. Is it also true to suggest that if you reduce government expenditure by over 20 per cent you are going to see a reduction in participation?

Mr «Norton» : Probably not a massive one, because the history suggests that students are not overly responsive to increases in prices. The demand driven system actually creates the first real chance to test these theories, because in the past we have definitely seen a dip in applications after student contributions went up. But because there was always significant unmet demand—that is, applications vastly exceeded available places—it never affected enrolments before. This meant there was less unmet demand, whereas now the supply and demand are getting closer to equilibrium. This will test whether it really does make a difference. I am expecting that there would be some small—

Senator KIM CARR: In the RIS, page 41, the government is citing your review of the demand driven system as the substance behind the claim that there had been widespread consultation prior to the budget about the changes that they introduced. Are you aware of that?

Mr «Norton» : There was widespread consultation about the demand driven elements.

Senator KIM CARR: Yes. But there is a suggestion in the RIS:

The higher education and research reforms announced in the 2014-15 Budget were the result of extensive national discussion and stakeholder consultation.

Your review is cited here and it says that the reviews undertaken between 2012 and 2013 'received 168 written submissions'.

Mr «Norton» : Certainly some of the submissions had a go and tried to say, 'Give us more money,' but that was not in our terms of reference.

Senator KIM CARR: My point is this: if you received these submissions, were they provided in the context of the government proposals that were actually announced in the budget? Were people aware that that was a matter that they were being consulted on?

Mr «Norton» : Some of the submissions did raise issues around fees and government funding, but because that was not in our terms of reference we did not consider it.

Senator KIM CARR: That is my point. Your terms of reference did not go to that issue. I am just wondering how adequate that description in the RIS is, of what you actually did.

Mr «Norton» : It is partially true.

Senator KIM CARR: When did you become aware of the government budget changes?

Mr «Norton» : Shortly before the budget.

Senator KIM CARR: As part of a lock-up?

Mr «Norton» : Yes.

Senator KIM CARR: So you did not undertake the review in the context of the budget changes. A nod is probably not easy for Hansard to pick up.

Mr «Norton» : Sorry. Yes.

Senator KIM CARR: In regard to the question of the fees that are likely to be charged, do you see the higher education system in this country as representing a true 'market' in the classical sense of that word?

Mr «Norton» : Certainly not in the neo-classical economic sense of that word.

Senator KIM CARR: As a market, how adequate do you think that description is for our university system?

Mr «Norton» : I would say that there is a set of sub-markets, where different kinds of providers are competing for students, but clearly there are some very dominant suppliers who keep the number of places they are offering well below demand. From that point of view they have capacity to set relatively high fees.

Senator KIM CARR: Do you see that there is any relationship between price being seen as—or as a proxy for—quality?

Mr «Norton» : I think there would be perceptions that that would be the case. It is not necessarily true, and therefore people need to be very careful.

Senator KIM CARR: In classical terms do you think that higher education is a positional good?

Mr «Norton» : Some of it, yes.

Senator KIM CARR: What factors do you think operate here to allow it to be described in those terms?

Mr «Norton» : Certain institutions, by their age, level of research activity and selectivity, claim high status. It is pretty clear that some students believe that that is of benefit.

Senator KIM CARR: Indeed. In fact, it has been put by Professor Quiggin, for instance, and a number of our submissions would argue that people's knowledge of higher education institutions is quite limited. They know of an institution through reputation. The Group of Eight, for instance, will be seen in one particular way as distinct from other universities in the system. Isn't it the case that people will look to those reputational issues rather than price, per se?

Mr «Norton» : I expect it will be a mix of the two. If price differences become large enough then I am sure people would reconsider. We already see in, say, the Group of Eight versus tech uni markets, when you look at the range of ATARs of students, there are lots of people in the tech universities who had the ATAR to go to a Group of Eight but, for various reasons, decided not to.

Senator KIM CARR: That is true.

Mr «Norton» : There is a group of students in play for all these institutions.

Senator KIM CARR: But it is generally the case that ATARs for the University of Melbourne would be different from Federation University.

Mr «Norton» : Yes, very different.

Senator KIM CARR: Why is that?

Mr «Norton» : The University of Melbourne is seen as the place to go. It has a long history of being very selective. People believe that that degree would be worth more than a Federation University degree.

Senator KIM CARR: On the question of price pressures—that is why I am asking this question—the government argues that fee deregulation will expose the higher education market, as they describe it, to a downward pressure on prices, thus advantaging students and lowering the prices charged by providers. What is the evidence for that?

Mr «Norton» : I am pretty sure there will be price competition at the lower ATAR end of the market, where the brand factors are relatively neutral. At the top end, it will only be between other Group of Eights and the top of the tech sector. So there will be some discipline, but we both believe that fees would go up in those institutions.

Senator KIM CARR: I could not agree more with you. The reality is that the competition is between institutions of a like. The new education provider from the back of beyond is not going to be able to compete with Melbourne University.

Mr «Norton» : No.

Senator KIM CARR: Can you explain in your view why that is the case?

Mr «Norton» : Because students perceive that a degree from Melbourne is going to be worth more in the labour market. They perceive that the student experience at Melbourne will be more enjoyable and interesting than a student experience elsewhere. There are a lot of aspects of the University of Melbourne which make it very attractive to people.

Senator KIM CARR: Can I turn to another issue, because I would probably agree with your assessment about the so-called price pressures. It has been a long argument in educational circles. In relation to the question about income levels, your research or your report is being cited by the government as a significant source for their claims that university graduates are $1 million better off over a working lifetime than year 12 graduates. I see that year 12 graduates are perhaps not the right comparison. I think that is what you are saying, isn't it? On your blog, for instance, on 29 September you said:

… there are now good reasons to reconsider the use of Year 12 as the comparison point of bachelor degree earnings. When these studies started decades ago, most people did not finish school and Year 12 was a good proxy for bright people who just chose not to go on to further study. But now the vast majority of people finish Year 12, and the people who don't go to university are heavily skewed to the lower ATARs.

So what do you think would be an appropriate comparison in working out what the public good is and the private benefit?

Mr «Norton» : I think it is a very good question, to which I do not fully have the answer, but possibly we need to look at the upper level vocational qualifications. The reason I say that is that that is the realistic choice of the people at the margins of going on to higher education. Almost everyone with a high ATAR goes on and it is those at about 70 and below who are having to make a judgement call. Therefore, we need to provide them with more information about the likely consequences of each of their choices.

Senator KIM CARR: This is quite an important point because it goes to the whole justification for the level of public and private expenditure. I have asked the Parliamentary Library to look at some of these questions and they have provided me some advice on certificate III and IV graduates' lifetime earnings as a comparator. There is quite an overlap between the incomes of tradespeople and many graduates. The analysis indicates, for example, that an engineer technician with a certificate IV is likely to earn more over their lifetime than a teacher or nurse. Do you think that would be a reasonable comparison?

Mr «Norton» : We need to do these consistent with discipline, I think, to make it a really valid choice. Probably not many people are choosing between teaching and engineering.

Senator KIM CARR: I used to work in a tech school. I was a tech teacher for 10 years. Believe me, there are quite a few engineers who are teachers.

Mr «Norton» : There probably are some.

Senator KIM CARR: Maybe it comes down to what the definition of an engineer is, but I am just going to the point that there are a lot of tradies who end up as schoolteachers. I hope that is the case, frankly. I really do hope that is not just my narrow experience in the tech division in the Victorian education department. So I am just asking: is that a more realistic comparison?

Mr «Norton» : I would say cert III and IV and voc ed diplomas would be the lead candidates for comparison points. Also, it is very gendered. Males do quite well out of voc ed.

Senator KIM CARR: That is exactly right. This goes to the question about the relative weightings in terms of people's capacity to pay. That is really quite a fundamental issue when it comes to income contingent loan arrangements. Given that people who earn higher incomes also pay higher taxes, don't you think that should also be considered as part of any consideration of what the private benefit is versus the public benefit of expenditure?

Mr «Norton» : Absolutely. I think the figure you just quoted—the $1 million—is a gross, but most of our work reports the net income.

Senator KIM CARR: Mr «Norton» and I could probably talk at some length. I am not certain it is actually helping the government's position.

CHAIR: I am all for a fulsome debate.

Senator RHIANNON: In your submission you argue that 'the extension of the demand driven system to private universities and non-university higher education providers would make Australia's higher education system fairer'. That has been disputed somewhat, so I thought it would be useful to explore it. Given 93 per cent of students are enrolled in public universities, in what way would extending the demand driven system lead to a fairer system?

Mr «Norton» : Because the other seven per cent would get the same treatment as the 93.

Senator RHIANNON: So you are saying that it would be equal rather than the 93 per cent being penalised? Is that what you are saying?

Mr «Norton» : Effectively I am saying that that the reason the seven per cent get no subsidy is largely historical. It is not related to any clear public policy principles. Therefore, these people are paying a lot more for reasons which are not based on any clear policy objective.

Senator RHIANNON: But, if that expansion is funded by cutting funding to public universities and increasing student fees, how is that fairer?

Mr «Norton» : Because everyone gets the same benefit rather than it being concentrated on some.

Senator RHIANNON: But isn't there—

Mr «Norton» : Your position seems to be that some people should pay full fees, which seems to be a bit odd.

Senator RHIANNON: You are saying that it would be the same. But, considering the experience in Victoria, surely you must agree that there is a large question mark over whether the benefit would be the same when you move into the private sector.

Mr «Norton» : I think the Victorian experience is different. There are a number of things that are different about higher ed. One is that I think in higher ed we have the regulator sequence right—that is, to the regulator first before you lift the caps off. It is inherently much easier to regulate less than 200 institutions compared to nearly 5,000. In vet we had a situation where students were basically paid to attend. They were given free iPads. Whereas, on my analysis of the non-university provider fees, there is absolutely no prospect of it being free. Also, brand and prestige have a huge influence in the higher ed market, very little influence in the voc ed market.

Senator RHIANNON: But under these proposed changes—you obviously have a lot vested in this—what would actually force private providers to lower their fees as a result of receiving Commonwealth subsidies, as opposed to pocketing the hundreds of millions in subsidies as a windfall profit? How do you ensure that does not happen?

Mr «Norton» : There is no legal requirement in the bill for that to occur, but market pressures, I presume, would cause it. I think we have already heard from some providers saying they would do it.

Senator RHIANNON: So you are relying on market pressures to ensure that these for-profit companies set up do not pocket that money? That would seem to be going against what happens in markets.

Mr «Norton» : I think it is a reasonable question as to what would happen with the money, but prices should go down. All the ones who have made public statements on it say that prices will go down. As it is actually competitive in that part of the market, if some move, the others will have to follow.

Senator RHIANNON: But to just assert it when we have this recent experience in Victoria remains surprising. To go to another question, is there a scenario in which the prospect of a large debt—something in the range of $200,000 to $300,000, as we have heard today, particularly for medical students but also for others; I acknowledge some of them will be lower—would deter students? Isn't that a fair analysis?

Mr «Norton» : For a medical degree, you probably would not be deterred by $200,000, because they have excellent earnings. But there are a lot of other degrees where $200,000 would be wildly excessive.

Senator RHIANNON: How can you be so confident that it would not deter students? What we are seeing with the medical students is that in recent times medicine has shifted away from a profession dominated by white wealthy males. More women are coming into it. Indigenous students are looking to become doctors. We have just heard today from one of the AMA representatives. He comes from the western suburbs of Melbourne. He was the first in his family to take up university study and became a doctor. There has been a significant shift there, so when you are so confident when you argue that it will not happen I feel there needs to be some backup to your assertions.

Mr «Norton» : Medicine is a particularly interesting case because it is not in the demand-driven system and about 80 per cent of people who apply for medicine are rejected, so there is no prospect of any shortage of medical applicants. The government did acknowledge that this was an interesting issue, and I am sure that they have developed this further, but—

Senator RHIANNON: They acknowledged that it is an issue. It is actually a very big issue because it goes against the whole notion of how a demand-driven system works in drawing a range of students in and it starts to move back to the exclusive way universities operate. Surely you have more thoughts to share with us on that.

Mr «Norton» : On medicine it is very difficult because you cannot bring competitors in because they will not be allowed to—

Senator RHIANNON: Yes. But again that actually shows the market failure, but let us put that to the side.

Mr «Norton» : It is not a market failure. Markets are not allowed to exist.

Senator RHIANNON: Yes, but that is the only way we are going to be able to get our doctors properly trained. Let us leave that aside. Let us come back to the question for other professions. What information can you provide to say that students are not going to be deterred by the new situation?

Mr «Norton» : All we can do is draw an analogy with previous fee increases and look at what the actual economics are likely to be, so looking at typical paths of lifetime incomes for people in those professions. The work we have done suggests that, even the fees that international students pay, do not radically affect this basic question: does it make financial sense to attend or not? So it still makes sense, but it is not as favourable a deal as it would otherwise be with subsidies or free education.

Senator RHIANNON: Just because of time I will move to the debt issue. You have written a lot about the actual public cost of HECS. You have obviously explored it considerably. If the reforms in this bill were implemented and universities were to increase their fees even modestly, wouldn't that increase the total amount of the debt that was never repaid?

Mr «Norton» : Yes, it would, and the government's own forward estimates say that too.

Senator RHIANNON: So it is the case that this cost would be incurred by the government not by the education providers who have already pocketed the money?

Mr «Norton» : That is correct.

Senator RHIANNON: And you think that is reasonable and that it is sensible to run not just the education system but the economy in that way? The debt burden will be something future generations will be living with.

Mr «Norton» : It will not surprise people who have read my reports that I am very concerned about doubtful debt in particular and what can be done to bring it back under control. The issue with the fees going up is often the issue of how long people spend in the labour force. Particularly women tend to leave the full-time labour force in their early 30s. On historic student contributions they have largely repaid by then but if they borrow more than that a larger number will still have remaining debt when they leave the full-time labour force, and that is one of the key things driving these numbers.

Senator RHIANNON: Let us talk about the people involved. It sounds like you are acknowledging that the impact on women will be considerable, as many other experts in this area have done. Is it desirable that women who start off on a career and choose to step out of the workforce for a few years end up saddled with a huge debt that grows, so they actually pay back more?

Mr «Norton» : This is a question about real interest.

Senator RHIANNON: Yes.

Mr «Norton» : In my submission I suggest that the loan fee idea that Bruce Chapman and others have floated is probably a better way of dealing with this than the real interest applied while people are not repaying.

Senator RHIANNON: So you think that would solve the problem?

Mr «Norton» : We have two problems here—one is the one you have mentioned and one is the mounting costs of HELP more broadly—and the loan fee targets both of those problems.

Senator RHIANNON: But are you arguing that women or people who are earning at a lower rate would not carry the main debt burden? Is that how it would work?

Mr «Norton» : They would not have any more debt than anyone else; they would just take longer to repay it. That is basically Chapman's idea: that everyone pays the same amount and just some people take longer to repay it.

Senator RHIANNON: Going back to the issue of deterrents: surely that would impact on people when they are considering what their career path is going to be. They see that could well be paying off the debt for much of the rest of their life and possibly beyond when their career finishes. Do you think that people will just not be impacted by that?

Mr «Norton» : This is not entirely undesirable. We have heard stories about very high fees. A lot of people should not pay those fees. It does not make sense for them to pay those fees if they can get a similar course at a lower price at some other university.

Senator RHIANNON: But under the system that you are backing at the moment with this legislation, that is what we are going to end up with. You have not provided us any explanation that the fees would go down. These private providers are set to make a lot of money.

Mr «Norton» : Fees for students, when privatised, will almost certainly go down on average. But because fees more broadly for the 93 per cent will go up then obviously the amount being lent will also go up.

Senator RHIANNON: What do you base it on that the fees are going to go down?

Mr «Norton» : In the currently unsubsidised sector, fees will go down.

Senator RHIANNON: It would appear when you read your material that it is largely ideologically driven, that you are very committed to the marketisation of public services than any evidence that these reforms will lead to better outcomes.

Mr «Norton» : My submission does not actually discuss the fee deregulation issue other than incidentally.

Senator RHIANNON: Yes but I am talking about the body of work. You regularly describe that you have played an important part in the legislation and the changes we have got here. I am talking more widely than just your submission. I feel it is being reinforced with your evidence today that you are not backing up many of these assertions; you are just saying that is how it will be. So one is left with the impression that it is an ideological commitment that you have to the marketisation of public services, which I think is very relevant here.

CHAIR: Is there a question, Senator Rhiannon?

Senator RHIANNON: Yes there is. I have put the question and I am interested in units.

CHAIR: Or why don't we stop talking and let Mr «Norton» answer it?

Mr «Norton» : Clearly I have a general view which is disposed towards markets. I think we at Grattan, we have done more empirical research on this than just about anybody else—thinking of the consequences—and we are still doing more of this. Our next project is on the whole interaction between the loan scheme and fees, which I think is a really important issue.

We are getting to the point generally where the system, even as it stands, has a loan scheme that was designed with quite different assumptions. So it was never designed to have this amount of debt. It was never designed to extend to the vocational system where earnings are lower. A lot of things have been added to HECS and HELP over the years without going back and thinking about how HELP is organised for repayments.

CHAIR: The comments you made about women taking time out of the workforce to have a family and the issues with them accruing debt during that time, would that be similar for somebody heading overseas to work for Goldman Sachs for a while following their economics degree?

Mr «Norton» : Yes.

CHAIR: Could you provide some comments around private-public benefits of higher education.

Mr «Norton» : One of the design flaws in the whole HELP scheme is there is no provision for payment for people who are working overseas, potentially earning very high incomes. Overall, higher education continues to provide high private benefits. It is true on average compared to the higher voc ed courses, even though it will not be as big a gap as it is for year 12. For that reason, I expect there will still be very strong demand for higher education.

The public benefits, in my view, are largely produced irrespective of the level of public investment. It is a product of having the degree, not of who paid for the degree. Therefore, I expect the level of public benefits will remain high as well.

CHAIR: We are hearing a lot of concern for those students who are predominantly from private schools attending very prestigious universities and the potential fee increases that that cohort of students might face. Could you, for the committee, talk about the other students and the potential students that we are wanting to see have the benefits of a higher education.

Mr «Norton» : I think lower ATAR students, heavily overloaded with low SES students, would greatly benefit from going to a pathway college rather than directly into a bachelor degree.

CHAIR: At the moment, we are hearing from vice-chancellors about the support structures and the costs to assist those students through their bachelor pathway. There must be a better way to assist those students.

Mr «Norton» : My view is that big universities are just not equipped to deal with people who have got problems with their study skills. The good results of these students, once they go through a pathway college, really show that their low ATAR reflected weaknesses in their schooling rather than fundamental weaknesses in their intellectual ability. The value of the pathway college is to fix that problem and then put them in a situation where they can actually succeed in a bachelor degree.

CHAIR: So if you are interested in seeing more disadvantaged students having the benefits of a higher education, you would get behind this package, wouldn't you?

Mr «Norton» : I certainly would. That is why I am supporting it.

CHAIR: There has been a lot of conversation around the mature age cohort of students. Do you have any experiences around the implications of the United Kingdom's changes to higher education and how it played out with their mature age sector as opposed to ours?

Mr «Norton» : The problem with the United Kingdom system is it treats part-time students quite unfavourably, so that heavily impacts mature age or, disproportionately, part-time students. Australia has never had this distinction between part-time and full-time students in the funding system, so it would be much less of an issue here. We have not looked at mature age students for the latest census, for 2011, but we did it for 2006. Certainly higher fees will drop their rate of return by a couple of per cent. But the bigger consequence is delaying starting. If you are starting at 30 rather than 18, you have got 12 fewer years in which to earn your higher salary, and so clearly that has a bigger impact on the lifetime economics of higher education.

CHAIR: We have also heard claims of thin markets in particularly regional areas. From you background, do you have any commentary around that?

Mr «Norton» : There are some thin markets in regional areas, but I am not sure this package will greatly change the situation for them. I think the only risk that the regional unis have is the potential for TAFEs, which already have a regional presence, to compete against them. On the other hand, the TAFEs know full well about thin markets and probably will not go in where they do not think there is a viable student body.

CHAIR: Thank you very much. You are quite a strong supporter of the continuation of the previous government's demand driven system—that this is actually an evolutionary process, if you like, that the nation is going on through higher education. Could you flesh out why you see this as the next logical step to build on the Labor government's transformative reforms?

Mr «Norton» : Particularly the sub-bachelor is unfinished business. The previous government originally included them and then, at the last minute, excluded them.

CHAIR: Do you know why?

Mr «Norton» : I understand it was partly financial reasons and partly concern about some of the TAFEs. The non-university providers were recommended by the Bradley report, on which the demand driven system was based. I understand again that that was rejected at the time for financial reasons, but this is filling in the missing gaps of that particular reform package.

Senator KIM CARR: Less money.

CHAIR: Thank you.

Senator RHIANNON: I was interested in whether the ATARs act as a non-monetary price for allocation of places.

Mr «Norton» : I think it is an interesting analogy, yes.

Senator RHIANNON: Why would a monetary price result in deregulation being superior?

Mr «Norton» : It introduces another factor into your decision. We have already seen there are lots of students who could go to Group of Eight who go to the tech unis instead. This would be another factor that might suggest that some of them think the techs are better value for money.

CHAIR: Thank you so much, Mr «Norton» , for your evidence today.