Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Education and Employment Legislation Committee
25/07/2017

ENGLISH, Mr Dom, Group Manager, Higher Education Group, Department of Education and Training

LAWLER, Ms Katerina, Acting Branch Manager, Funding Policy and Legislation, Higher Education Group, Department of Education and Training

LEARMONTH, Mr David, Deputy Secretary, Higher Education, Research and International, Department of Education and Training

[14:30]

CHAIR: Welcome. I understand that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and should be accompanied by a statement setting out the basis for the claim. I now invite you to make an opening statement, and at the conclusion of your remarks I will invite members of the committee to put questions to you.

Mr Learmonth : We have no statement and are happy to proceed with the questions.

Senator JACINTA COLLINS: In terms of the information that's been provided to the committee, I assume that the department has been following the hearings over the last two days.

Mr Learmonth : For the most part, yes.

Senator JACINTA COLLINS: So, there are none of those particular issues that you want to respond to?

Mr Learmonth : I'm sure we'll have an opportunity during the course of things, but if not I'm happy to come back at the end.

Senator JACINTA COLLINS: Okay. You might find that on digesting it, particularly once we've reviewed the Hansard, there will be further questions on notice. But the first one I found interesting was the evidence of the University of Melbourne that despite being the country's largest provider of postgraduate course work they weren't consulted in relation to the postgraduate voucher 'thought bubble', as some people have described it. Is that true?

CHAIR: Who described it as a thought bubble?

Senator JACINTA COLLINS: I'll have to go back and source that for you. I've heard it a few times.

Mr Learmonth : I'm not sure I can add anything more to what I think was said at estimates there was a substantial consultation process that led to this. There was some early discussion about consultation fatigue. There were a number of ideas that were in discussion at that point. I think this particular postgraduate idea came from the sector and I'm sure it was discussed in various ways. Certainly with the government having taken a decision there will be very significant consultation with the sector and Melbourne uni in particular. Indeed, I've already had at least one meeting with Melbourne uni on this matter and how it might work.

Senator JACINTA COLLINS: Subsequent to the announcement?

Mr Learmonth : This week or last week—subsequent to the announcement, absolutely. There's been discussion in relation to the transition provisions for Melbourne uni, as was referenced at the last estimates. But since then we've had discussions with Melbourne uni about how things might work in practice.

Senator JACINTA COLLINS: Yes, but I think the fairly broad concern raised by several people has been the nature of this legislation. You'll have heard me say that I'm surprised that the Scrutiny of Bills Committee actually didn't reflect on two matters that have been before us: (1) the retrospective application issue and (2) the level of discretion that if it progressed in its current form the legislation would allow to matters that have yet to be consulted upon in any detail. The performance fund and the postgraduate voucher or scholarship arrangements seem to be the two obvious areas.

Mr Learmonth : I am happy to look at these in more detail—as no doubt we will—but these are very broad enabling provisions in the legislation. The Senate will ultimately have the power to disallow the particular arrangements should the Senate choose to do so, following consultation on that detailed work-up.

Senator JACINTA COLLINS: Yes. But, Mr Learmonth, this is operating contrary to current trends in relation to legislation. A growing concern is that too much discretion is being allowed and that more of these provisions should be provided in some clear detail in the legislation itself. That has been the position put almost universally from the sector. The position that has been put in parliament now for some several years is that too much discretion is being allowed and we are relying on instruments and regulations in too great a capacity. I cannot recall, for example, Professor Craven's exact words here, but they were along the lines of that is a very extreme example, quite contrary to those trends.

Mr Learmonth : I cannot comment on the trends, but what I can say is that the substantive matters that go to how any of the aspects of performance funding and so on work will be disallowable, and the Senate will be able to exercise its prerogative in that way.

Senator JACINTA COLLINS: Why do they need to be proceeded with now? Why not get it right first and then legislate it?

Mr Learmonth : I think part of the challenge might be that it is shifting the debate away from 'should it happen' to 'how it will work'. Certainly, one thing this approach enables is the debate to be shifted to how it will work, with the safety valve, if you like, that, if the Senate does not like what ultimately is the product of consultation and decision by the minister, it is well able to exercise its prerogative and disallow.

Senator JACINTA COLLINS: I think there is fairly universal agreement that some performance related arrangements should happen. There is a lot of discussion about how that should happen and whether we are looking at carrot or stick arrangements.

Mr Learmonth : I would not have thought there was universal support. Certainly, if the proposition is not on the books, as it were, I think the debate would be of a certain nature and engagement with the sector; but, with legislation in place, it provides a substantial period of notice before it comes into effect. The debate then is: how do we make this work correctly and appropriately?

Senator JACINTA COLLINS: I can't say shaping the debate is a good justification, to my mind, for legislating vague arrangements. If that is the justification, sobeit. Equally, some might suggest that the justification is that the government is trying to pretend that it has a reform package, whereas what it really has is significant cuts.

Mr Learmonth : The other aspect to this particular arrangement, talking about performance funding as an example, is that where we might want to be in a few years and where the sector might want to be in a few years is obviously not where we want to be in year 1. This is something that will need to evolve progressively over time. It is going to start next year from a very simple flag form arrangement and it will evolve. It will need to evolve in consultation and collaboration with the sector. It will need to evolve to become more nuanced in the kinds of things it picks up and incentivises. It will need to evolve as the sector itself feels more confident in it over time. That flexibility is inherent to enabling that evolution with the sector.

Senator JACINTA COLLINS: Yes, but you can achieve that sort of flexibility without legislating very vague provisions at this point.

Mr Learmonth : I don't know that they are desperately vague.

Senator JACINTA COLLINS: I didn't say 'desperately'.

Mr Learmonth : But certainly if you are talking about the basis on which a performance arrangement will be put in place—in other words, what the metrics are and what the balance between different contributors in the metrics to where money might flow—all of that complexity is precisely what you will want to evolve each year in collaboration with the sector to result in something which is disallowable but enables it to evolve.

Senator JACINTA COLLINS: No. I still think you have got the cart before the horse. But let's move on to a different issue. I understand the minister has responded to a letter from the Joint Committee on Human Rights. Is that the case?

Mr Learmonth : I believe so.

Ms Lawler : That's correct.

Senator JACINTA COLLINS: We had Mr Norton from the Grattan Institute essentially describing the Grattan approach, which was responding to government along the lines of this is the fiscal approach that is going to be taken and we want to present the worst of all options. But he also said something which intrigued me, which was that education wasn't a human right. I thought that was interesting, given the consideration that the Parliamentary Joint Committee on Human Rights has given this issue and that the minister has now—I think you have just confirmed—responded to it. What is the best way for us to seek access to that response ahead of it being tabled on 8 August—I think the day before we report. Should we, through you, make a request of the minister? My understanding is that the minister needs to seek approval from a joint parliamentary committee.

Mr Learmonth : I'm sorry, Senator; I've got no idea. I can find out and get back to you quickly. I will take that on notice, but we will come back to you quickly.

Senator JACINTA COLLINS: The other issue that might circumvent you needing to do that is that the committee could agree to ask the minister could he consult the joint parliamentary committee and make that available to this committee ahead of that.

Mr Learmonth : It's probably the quickest way.

CHAIR: The committee might have to have a discussion about that. If the department's happy to make the request and provide it, that might be the easiest way.

Senator JACINTA COLLINS: I'm just not sure they have the authority to, that's all. A request has to be made to the joint—this is a privilege issue.

Mr Learmonth : Sorry, Senator, I don't want to be pedantic, but I thought you asked: can we ask how it can best be done?

Senator JACINTA COLLINS: Yes.

Mr Learmonth : It's probably for the committee, or you if you'd like, to actually ask the minister directly.

Senator JACINTA COLLINS: I think that might be the quickest.

Mr Learmonth : If your question to us is, 'How's the best way to do this?' we can find that out. It probably wouldn't be appropriate for us to request it.

Senator JACINTA COLLINS: No, that's right; that's my thinking. I think it's probably more a parliamentary procedure issue rather than a departmental one, so leave that with us. But at this stage, you've confirmed that the minister has indeed responded to be committee's report.

Mr Learmonth : I believe so, yes.

Senator JACINTA COLLINS: So we can follow that up. I think that technically, without approval from the joint parliamentary committee, it'd be a breach of privilege for that information to be made available.

CHAIR: This is why it's handy to have the chair of the Privileges Committee here today.

Senator JACINTA COLLINS: I've only followed it in other areas where the pace of legislation has moved ahead of parliamentary process and you haven't had scrutiny processes responded to before you've actually dealt with the legislation in the chamber.

Unidentified speaker: That's happened a lot, yes.

Senator JACINTA COLLINS: Fortunately, with this bill that's not the case. Similar to what we had with the school education bill, we've got sufficient time to work through some of those issues. Do you have any comments on the issues around retrospective application of changes to HECS or HELP, and the overall issues around ministerial discretion?

Mr Learmonth : First one first: I'm not sure what you meant by 'ministerial discretion' in that context, Senator, but in relation to retrospectivity of fees—fees or HECS?

Senator JACINTA COLLINS: HECS, so shifts to the repayment threshold.

Mr Learmonth : There have been a series of changes over time, though always, I think, applied across the board on the repayment threshold. So they've applied to the whole payment population at the time; there's never been grandfathering.

Senator JACINTA COLLINS: No, I understand that's been the case historically. That's not a reason not to consider the potential impacts, and particularly if we're talking about a shift down to a threshold of below low-income relief provided through other social security measures.

Mr Learmonth : I think in this case the policy issue that underpinned the decision was: what is the appropriateness of the thresholds in all the circumstances, and the repayment rates that are attached to them, rather than retrospectivity. Retrospectivity's never been a feature of it; it's always been a progressive matter.

Senator JACINTA COLLINS: Well it has retrospective impact. If you've got a HECS debt—

Mr Learmonth : It may change your repayment requirements—it may.

Senator JACINTA COLLINS: Exactly, yes.

CHAIR: But your point is it's always been the case.

Mr Learmonth : It has ever been thus. There have been a number of changes over time, and that's always been the way it's done.

Senator JACINTA COLLINS: Yes, I know. I understand the historical issue, but I'm saying in this particular case we've perhaps more significantly departed from what was described as the original principle of HECS, which is people start repaying once they get to income levels that reflect the benefit of their higher education, now down to a threshold of $42,000, which, as has been put to us, is below the minimum income threshold applied to, for example, parenting payments. I am asking what consideration of those issues, if any, has occurred. We've not had anyone able to describe to us the logic of $42,000, except I think Mr Norton might've suggested that in a Labor policy it was described as too low at one point.

Mr Learmonth : We did cover this at estimates. I'm happy to rehearse again why $42,000 and those other matters.

CHAIR: I think, to Senator Collins' point, she is saying where it intersects with the social security system. But I would suggest maybe a decade ago, when the settings for family tax benefit A and B were incredibly generous, where families earning $120,000 a year were able to claim social security benefits. I don't think there would be anybody in Australia thinking you shouldn't be starting to pay back your HECS debt if you're earning—

Senator JACINTA COLLINS: No, I'm talking about low income thresholds, not the top.

CHAIR: No, but the threshold you're talking about is: where do things kick in for family—

Senator JACINTA COLLINS: Parenting payments.

CHAIR: Yes, all of that.

Senator JACINTA COLLINS: No, that's not family tax. That's a different payment.

CHAIR: But benefits under the social security system.

Mr Learmonth : There are quite a few issues there in what we talked about. If you like, I can do a quick run across the top of all those issues and you can drill down where you like. Does that work for you?

Senator JACINTA COLLINS: Yes.

Mr Learmonth : So a number of things: where did $42,000 come from? Ultimately, it was a decision of government that balanced various considerations about what was an appropriate level to reduce it to, to generate sustainability of the system. The whole point of it was to make the system more sustainable—an unrecoverable debt book. It was about ensuring that the HELP scheme was indeed available for students of the future—a point that Ms Robinson from UA was making earlier today—so clearly making it a reduction; the threshold was going to make it more affordable. At the end of the day, that's the judgement we took. The actual $42,000 came from a Grattan paper, except what the government landed on was a little bit more generous insofar as the Norton paper proposed a $42,000 threshold, but at a three per cent repayment rate. The government has looked at a much more modest tapering at only one per cent. If you like, that was the genesis of 'why $42,000'. It's a judgement call informed by that report, but the decision was for a much more reasonable rate.

In relation to some other matters here, the question of potential earnings for universities is less a matter about where HELP thresholds are set. They had been more a policy design feature of where fees are pitched in relation to the different clusters, whether you are going to do medicine or you are going to do something else. That's really where that comes into play. The general proposition here in relation to earnings on HELP is that university graduates maintain substantial premiums over others in relation to both employment and income. All of the areas of study in university enjoy a starting salary premium above average weekly earnings—none of them are differentiated on that basis. The initial threshold that we're looking at here, $42,000, is again very modest. It's $8 a week in repayments.

The nexus with social security and so on: as we discussed in estimates, HELP is and has always been driven by the tax system—by some of this taxable income that applies equally to everybody. If there are going to be considerations of government support for people in particular life circumstances, they're actually the province of the social security system, whether it's family tax benefit or childcare or whatever it might be. Many of those things also work on taxable income or joint income. That's where direct support is provided to people in particular circumstances, but the crux of the HECS system, which piggybacks off tax, has been a simple proposition—looking at an individual's taxable income—and always has been.

Senator JACINTA COLLINS: Did you have a look at the letter that the NTEU gave us of the woman outlining her circumstances?

Mr Learmonth : I haven't seen it, no.

Senator JACINTA COLLINS: Can I ask you to have a look at that. I'm assuming the response will be that no consideration of those factors hasn't been given because of the answers you've given me to date. But dropping down to the $42,000 and looking at the familial circumstances of some people at those income levels: as this letter discusses, you've got people in family circumstances where, because we're talking about gross income for social security, they're denied access to payments such as parental payments that fit their life circumstances with no consideration of the funds that have been taken in relation to a HECS debt that they may have.

Mr Learmonth : Again, this is very modest: at $42,000, it's $8 a week. If you look at an international comparison, New Zealand cuts in at $17,000 at 12 per cent. The proposal here is for $42,000 at one per cent. So it is actually very generous.

It remains the case that the HELP system is really piggybacked on the tax system. The tax system is what it is, and the social security system in its various forms is there to provide support to people in particular circumstances. The HELP system is a contingent loan scheme piggybacked off tax. It is not the role of the HELP system to provide targeted government support to people in particular circumstances. That is the role of the social security system.

Senator JACINTA COLLINS: No, but it does not mean that, for historical reasons, they should be or should remain incompatible. I think I have seen one reference in all that has been put to us—but with no detail—about any assessment of the effect of marginal tax rates for particularly young people, new graduates, leaving university and what impact this proposal would have on top of both tax and social security payments for such people. In circumstances where another major policy area of consideration for government is housing affordability, for instance, it is just yet another nail in the coffin for some new families.

Mr Learmonth : One per cent and $8 a week, yes.

Senator JACINTA COLLINS: Yes; that's right—and $8 a week can mean a considerable amount for some people. How do you respond to the suggestion that this lady's sister had sought to appeal her need to repay and had been told that $300 per fortnight grocery spend for essentially four adults was excessive. So $8 a week is $8 a week in context. It also belies the suggestion that was put to us that 'Of course, you don't have to repay.' It is compulsory that you meet repayments if you are in employment if you are earning those levels.

Mr Learmonth : And if you meet those thresholds.

Senator JACINTA COLLINS: Yes, that's right. So what is the choice? The choice is to earn an income or not to. It is not some voluntary assessment of, 'Well, I'm still on a low income, so I'll defer making payments until my family circumstances are in a better position.' You don't have that option, as austere as your family circumstances might be. If you are a single mother with three adult boys, it doesn't matter—we're still going to apply this system, now at $42,000. She was complaining about the $52,000 threshold. The impact is going to be even greater on people in those sorts of situations.

Mr Learmonth : Again, the change is quite modest. I think the discussion is probably one best placed in the context of the family tax benefit or other social security policies.

Senator JACINTA COLLINS: So it is a problem for social security; it is not a problem for education?

Mr Learmonth : I am saying that the province for targeted government support for people in such circumstances is social security policy, such as family tax benefit; it is not the HELP system.

Senator JACINTA COLLINS: So you reckon we should take this issue to social security and seek an exemption for families in certain circumstances or that we should seek that HELP debt be taken into account in your gross income?

CHAIR: I think you are asking Mr Learmonth for an opinion on policy.

Senator JACINTA COLLINS: Well, he proffered that suggestion, Chair.

Mr Learmonth : Not quite, Senator. I said that it is not the HELP scheme that should be dealing with these things.

Senator JACINTA COLLINS: It is a compounding of a problem that has already been presenting to us by the changes that have been suggested here. But I do not think that we are going to achieve anything by pursuing this further.

Mr English : I would note that some of the facts in the letter bear some investigation. If you are paying $240 a fortnight from your wages towards your HECS—

CHAIR: That is a high wage.

Mr English : Yes; that's not a starting point.

CHAIR: That is what I thought yesterday. That was the question I had when I read the letter yesterday. To be paying $240 a fortnight off your HECS debt, what would you have to be earning to be at that level?

Mr Learmonth : We will come back to you with that figure.

CHAIR: Thank you.

Mr English : I would add, however, that, at $54,000, under the new model the repayment rate would be three per cent and not the four per cent that it is at $54,000 now. So it is a more accommodating system for people at lower wages and it smooths out what are currently massive shifts in—

Senator JACINTA COLLINS: Removes some of the cliffs.

Mr Learmonth : It removes some of the EMTR problems.

Mr English : It's a $2,000 first bill somebody gets now when they hit $54,000, compared to the $420 that they begin to repay when they first enter the repayment system. Over a life cycle of income movement and change and progression, it smooths out those changes, makes the steps more progressive and should have less of an impact on people's decisions about workforce choice and a whole range of other things. But, at the end of the day, to keep the loans scheme sustainable, it needs to recoup enough of the original loan to make the scheme affordable for government and it also has to be simple to administer so that there is not an extreme cost incurred in the recovery of the loans, which is probably the unique achievement of the Australian system, where the tax office doesn't need to care what qualification you got your loan for, how long ago it was—a whole lot of things that add to the cost of administering these schemes which other countries have not avoided. The UK system has multiple rates applied on multiple loans and, as a result, we know that they are in some serious discussion around the way their scheme is currently constructed.

Mr Learmonth : Our system is more progressive at the top end too, with this proposal. It is not just lower and smoother rates at the lower income levels; it actually cuts harder at higher incomes too.

Senator JACINTA COLLINS: Again, this is why I'd like to see the EMTR assessment.

Mr Learmonth : You are talking into the six figures at that point—high incomes.

Senator JACINTA COLLINS: But, as I say, the tapering has changed. The proposal changes the tapering at some of the higher levels as well. What I would like to see is an EMTR assessment of what that means. It is problematic to do. You might need to do it in terms of case studies if we are looking at people with families.

Mr Learmonth : I am not sure it would be something we could do.

Senator JACINTA COLLINS: I could propose to you a couple of questions around family case studies at different income levels.

Mr Learmonth : I think EMTR would be a matter for Social Security or Treasury, not this department.

Mr English : We don't have the capacity.

CHAIR: Why don't we just ask them? We will just put a question on notice to them.

Senator JACINTA COLLINS: Yes.

Mr English : I would just also note that, on my amateur, rough calculator work, to be paying $240 a fortnight from your wages towards your HELP debt requires you to be earning in the vicinity of $90,000 a year.

Senator JACINTA COLLINS: That would be about right, but, again, $90,000—she would be earning that. She was on an 80 per cent EFTR. Anyway, that is above the threshold.

Mr English : It is certainly well within the zone you would expect people to be paying back their loans. There will be some change to the marginal rate.

Senator JACINTA COLLINS: Okay. What was the background to the second Deloittes report, which was, I think, released yesterday? There is a bit of confusion over which Deloittes report we were dealing with at different stages.

Mr English : That report was commissioned in, I think, June 2016, to continue to take forward our understanding of the benefits that students receive from their higher education. It formed part of the preparatory work that we did both through people like Deloittes and other consultants as well as our own policy work to prepare for the development of the package that was presented in the budget this year.

Senator JACINTA COLLINS: Why is it so late in release then?

Mr English : That is a matter for the minister in terms of release timing. The substantive details of the report, however, were published in the documentation that was produced in May 2017, the higher education reform package document, which provides—

Senator JACINTA COLLINS: This informs our scepticism, when the minister cherry-picks information but only makes full reports available at the very last minute.

CHAIR: We will take that as a comment.

Senator JACINTA COLLINS: You are saying it is a matter for the minister, so we will leave that bit there. It is student benefit, but I thought it was public benefit as well?

Mr English : Yes, it is.

Mr Learmonth : It is the balance between the two—what is the balance of public and private benefit from education? It is the ratio.

Senator JACINTA COLLINS: Sorry, Mr English. I interrupted you. You were giving us an overview of its content, which I haven't had the chance to read yet.

Mr English : If you were referring to page 10 of the document released on 1 May, when the minister announced the package, you will see the core findings of the work. The rest of the documentation primarily documents how they generated these estimates, which was a process of evaluating the various economic, fiscal and other impacts of people's different education levels. What it shows though is that the average, across qualifications, benefit of higher education that is derived for the individual from higher education when you control for innate abilities is 45 per cent and that the public benefit is 55 per cent. There is a range of things like higher income leads to private benefit but also leads to higher tax revenues, for example. Again, when we control for innate abilities but the table shows that it was a 47/53 split. The analysis is not new. It has been the sort of thing that people like Norton and the Grattan Institute have pursued at various times. We have undertaken other pieces of analysis over the years so it is just to refresh that sort of work.

Senator JACINTA COLLINS: So it does not provide anything new in that sense. Does it provide anything new in whether we should shift that balance?

Mr English : It gives you a current benchmark of what the balance of benefit is. To be honest, we do not actually control the balance of the benefit particularly in the scheme of things. The cost of education moves these numbers to a small degree, but the balance of outcome is largely how successful these people are in the labour market as well as the fairly well documented overall benefits of higher education—fewer health problems, greater civic engagement and the like. So we do not control that share of public and private benefit to any meaningful extent.

Senator JACINTA COLLINS: As you said, it does not add anything new to justify a greater shift in that balance towards private contribution. The other evidence we have had before the committee is where Australia sits in relation to the level of private contribution within the OECD, which is very high. Who else has increased private contribution in recent times?

Mr English : The UK has made substantial increases. We would need to go and examine the detail over time.

Senator JACINTA COLLINS: At the same time as increasing public contribution?

Mr Learmonth : No. They have very little public contribution; they tripled their fees.

Mr English : In fact, in the UK, I think you could say that most of the funding is now student based, with some top ups on a subject list basis from the public sector but it is at the margin for STEM.

Senator JACINTA COLLINS: How is the UK going in terms of lower SES cohorts? Because the other evidence we received was that comparisons between the UK and the US are not necessarily meaningful for Australia because our cohort of lower SES has shifted and needs to be taken into account in modelling impact of changes of HECS.

Mr Learmonth : There are a couple of things there. I'm not sure that we have any information on how the UK has gone but they've got some other issues with their system that go to application of real interest rates, which are trending above six per cent at the moment and, more particularly, some volume effects coming out of their international students as a consequence of Brexit—it is alleged. In relation to low SES, in our context, we went through this in some detail in estimates, and the evidence is pretty clear that the HELP system offers no material boundary at all for a couple of reasons. It is just observable history that the rate of growth in low SES admissions has significantly exceeded the general rate of growth of admissions HECS has been in place, so since 2011 to 2015-16. Domestic and undergraduate students grew by 19 per cent; low SES grew by 26 per cent. So there has been an overachievement, if you like—a disproportionately greater growth of low SES in the last five or six years with the HELP system in place.

Senator JACINTA COLLINS: I don't think I'd call it overachievement. I don't that's a helpful thing.

Mr Learmonth : It's disproportionate. It's 26 per cent versus 19 per cent.

CHAIR: Mission accomplished—except for regional students.

Mr Learmonth : The lived experience is clear on that and the evidence from the experts—Bruce Chapman in particular that I have quoted and I will do it again for the record. I think there was a little discussion earlier today about the relationship of demand to price, whether it is elastic in relation to fees. Within any sorts of reasonable boundaries, it appears to be almost perfectly inelastic. Bruce Chapman said, 'The evidence is now overwhelming that changes to the level of the charge and other aspects of HECS HELP such as the first threshold repayment have no discernible effects on student behaviour or choices.' So it is really clear.

Senator JACINTA COLLINS: I understand what Professor Chapman is saying there. The countersuggestion put to us was the evidence he is relying upon does not take into account as significant a cohort as lower SES students, as we now currently have.

Mr Learmonth : I have seen nothing that would undermine his conclusions. Certainly, the lived experience of this system is overwhelmingly such that it is clear that the HECS system poses no barrier to low SES. It is just observable fact.

Senator JACINTA COLLINS: I think La Trobe University was going to provide us further material on their sources. So we will see. Can I go to the article in today's Fin Reviewand the table. The article starts:

Federal Education Minister Simon Birmingham has accused universities of cost inefficiencies, saying that they can easily absorb a 4.9 per cent cut in course of subsidies announced in the May federal budget. He released a government analysis showing that, after the cut real funding per student for university courses will be higher than in past years when all, or nearly all, universities were running a surplus.

What is the analysis that he has released?

Mr English : We were in a car driving from Canberra, so I believe I understand what the data is about. We have taken the per place student funding over the period since 2009 and rebased it to constant dollars, 2017 dollars—

Senator JACINTA COLLINS: Surely, this is not a school estimator type issue. Please don't tell me you've done it in higher ed now.

Mr Learmonth : No.

Senator JACINTA COLLINS: It's just when you start talking about rebasing, I have to go back and check the assumptions that have been made.

Mr Learmonth : It is just putting constant dollars.

Mr English : It's up with CPI so you can have a clean apples and apples comparison.

Senator JACINTA COLLINS: So you 2017 dollars here?

Mr Learmonth : Yes.

Senator JACINTA COLLINS: And it is a clean apples and apples; it's not a fantasy apple—

CHAIR: A nashi pear in there!

Mr Learmonth : No bananas, as much as I would love that, being a Queenslander.

Senator JACINTA COLLINS: Again, this is partly why the sector complains that there is now this pattern of behaviour of this sort of thing being released in the media and an incapacity to do a proper assessment of what is being dribbled out by the minister. The department wasn't part of this government analysis that has been released here—is that the case?

Mr Learmonth : We have run the calculations. I'm not sure what you mean by being part of. We certainly were not involved in briefing the Fin Review.

Senator JACINTA COLLINS: What I am trying to differentiate here is between the Fin Review saying the minister has released government analysis and understanding precisely what that analysis is. If this is analysis that simply has come out of the minister's office, that is one thing. If it's an analysis that the department has undertaken for the minister which has now been released , that's another thing. What is it that the Fin Review is referring to? I do understand that the media sometimes aren't necessarily accurate in how they describe things.

Mr Learmonth : We have done estimation for the minister, which indeed goes to what Mr English was talking about: putting historical subsidy into constant price terms to make comparisons and thus make judgements in relation to claims being made. The figures that appeared in the Fin Review are entirely consistent with the material that we provided to the minister.

Senator JACINTA COLLINS: So this table here describes 'tighter belts'—I assume that's not the department's language—real funding per student place, government and student contribution in thousands of dollars from 2009 through to 2020. The source is described as the federal government. Can you give me a bit more information on what the source is?

Mr Learmonth : I haven't got the thing in front of me, but, as I said to you, the figures that we have seen in the newspaper are consistent with the work that was done for the minister, as Mr English has said, to step out historical contribution rates in constant dollar terms so those comparisons can be made. We can give you our version of those numbers.

Senator JACINTA COLLINS: If you wouldn't mind. As I said, I assume yours doesn't have a table which says 'tighter belts' on the top of it.

CHAIR: Don't answer that.

Mr Learmonth : Very likely not. From our perspective, the point that's made in relation to these claims—was it 'wrecking ball' or something else?—about the loss of money from the sector is that it is another way of being able to illustrate what is happening with the sector. Let me run through a few things to try and put those claims in context. First of all, we're talking about impacts on Commonwealth grants and base funding. Commonwealth grants represent, on average, about one quarter of revenue to the sector. That's an average figure, and we're talking about changes to Commonwealth grants.

Senator JACINTA COLLINS: Depending on the institution, obviously.

Mr Learmonth : Yes, the range is 20 to 40 per cent, but the average is about 25 per cent, so some more than others, but about that. Secondly, the sector's funding continues to grow over the next few years. Base funding next year, in 2018-19, will grow at two per cent, two per cent, three per cent and then four per cent in the years after that. If you take into account the totality of funding for the sector, they will grow at either 23 per cent or 24 per cent, depending on whether you're talking about a financial or a calendar year, over the next four years.

CHAIR: How fast is the economy growing over that same period?

Mr Learmonth : I'm not quite sure, but I can certainly talk about it retrospectively. Given the changes in demand-driven and price per place, the contribution to Commonwealth supported places has grown at twice the rate of the economy over the last five or six years. But I will go to—

Senator JACINTA COLLINS: Sorry, I don't see the growth in this graph. If you're looking at 2019-20 in 2017 terms your bar is still—it's per student?

Mr Learmonth : Yes, that's per place. That is not aggregate growth of the government sector.

Senator JACINTA COLLINS: Okay.

Mr Learmonth : If you want to look at that, when you look at 2020-21, when the full effect of the efficiency dividend is in—

Senator JACINTA COLLINS: This doesn't have 2020-21 in it.

Mr Learmonth : The price in 2017 dollars then will be about $18,500. That is higher than at any time prior to 2010. It is around four per cent higher than in the year that showed the most growth under the demand-driven system. Clearly, with per student contribution from government being lower in real terms than will be the case in 2020-21, when the efficiency dividend is fully in place, the sector increased its provision substantially. The single biggest year, in that case, was 2006. In doing so, it is clearly evidenced that they have been able to afford it and that it has been profitable to do so. What it has also generated since then is scale economy. This is a real thing. There are much larger volumes. That scale economy is quite real. I will give you an example of that. The real level of funding after the efficiency dividend is in place will be higher than any time prior to 2010 and it will be higher than the years in which there has been record growth in the sector driven by the universities and their choices. Indeed, many of them over-enrolled.

Senator JACINTA COLLINS: The growth period you are referring to is in what years?

Mr Learmonth : So clearly these levels of funding were viable for unis not just to admit students but to substantially grow. In all of this context, with funding continuing to increase year on year and when the real level of contribution per student is the same as or significantly higher than it has been historically during periods of growth, it's hard to conclude that there is a problem.

CHAIR: That's a very compelling point.

Senator JACINTA COLLINS: Well, I think there's a lot in those comparisons you've been doing that needs to be unpicked. Some of it's quite cute.

Mr Learmonth : Let me make scale economy real for you. Thirty per cent is a big increase. To give you an example of scale economy and what's been possible, at the low level of volume of students clearly it was viable for them to significantly increase their load. Given there's been such increase, the scale economy available is significant. Here's a real example. In the period from 2009 to 2016, when all that growth occurred, the number of Commonwealth supported places at one institution—I could name it if you like—

CHAIR: Yes.

Mr Learmonth : The Australian Catholic University. The number of Commonwealth supported places increased by 220 per cent. They all attract the same level of funding, so revenue just from the Commonwealth, just for those students, grew by 227 per cent. The academic workforce grew by 68 per cent over that period. There is scale economy.

Senator JACINTA COLLINS: Yes, but the point that's been made here—

CHAIR: Hence my questions about staff-student ratio.

Senator JACINTA COLLINS: I think ACU themselves have actually made this point: they're in a relatively privileged position to be reflecting on the impact these changes will make, and indeed they highlight the issues for those institutions that are not carrying a surplus or will be moved into a deficit or have a very high reliance on the Commonwealth Grant Scheme.

Mr Learmonth : I am happy to go there, but everyone has enjoyed growth and thus some scale economy.

Senator JACINTA COLLINS: That's right, but some have benefited more from scale economy.

Mr Learmonth : Absolutely, and some perform better than others, some attract more students than others, some are more efficient than others et cetera. That's the notion of the operation of that marketplace. It is a healthy and viable sector, and I'm happy to go to the measures of that.

Senator JACINTA COLLINS: But the issue here is that we're talking about how those people that will most feel the burden of the efficiency dividend being applied to the Commonwealth Grant Scheme are the ones who probably have the least capacity and have benefited the least from scale economy.

Mr Learmonth : I don't think that follows at all.

CHAIR: Could you unpack that, please.

Mr Learmonth : First, everyone has benefited from scale economy. Second, if you go back to about 2009 or 2010—Mr English will correct me—I don't think anybody was in deficit when the per-place contribution, in real terms, was lower than it will be in 2021, after the efficiency dividend comes forward and is fully implemented. So, inherently, that doesn't suggest there's a structural issue. That doesn't mean that all the universities perform equally. Some obviously experience different results from others, for a whole variety of reasons, including how efficiently they're run. But there are few universities at the moment—we went through the five in question at estimates and are happy to do that again—that are not enjoying pretty good financial health, and most of the ones that aren't are being dragged down fiscally by the non-university TAFE operations they run, they're duals. So the university side of it has made a profit and the TAFE side hasn't. One has had some abnormal results. There's only one with any sort of structural deficit out of all of the universities.

Senator JACINTA COLLINS: Are there any contingencies to manage those issues?

Mr Learmonth : Which issues?

Senator JACINTA COLLINS: The move into deficit that will occur for some institutions.

Mr Learmonth : I don't necessarily accept that any of them will or indeed need to.

Senator JACINTA COLLINS: You don't agree with the state auditors-general that are raising these issues?

Mr Learmonth : State auditors-general?

Senator JACINTA COLLINS: That was the evidence we had earlier today.

Mr Learmonth : I must have missed that one. We can give you across-the-board figures for any universities, so I'm happy to go there.

Senator JACINTA COLLINS: Maybe you should, given that that's what they've been saying to us.

Mr Learmonth : Of the ones that are available to me, with the New South Wales auditor-general, they all reported an operating surplus. Revenues increased by 7.8 per cent, whereas expenditures increased by only 6.7 per cent, so their margins would have gone up. The net operating margin across the sector has increased. It all seems very healthy. In Queensland, it's an overall sound financial performance. They have a slightly curious issue in Queensland because of, I think, a write-down depreciation expense for the University of Queensland revaluing their buildings, which is kind of an abnormal accounting thing. Interestingly, the observation I would make about what the auditor-general said about Queensland universities is that, of all the Queensland universities, only four of them have a cost management framework in place to enable effective cost monitoring, review and informed decision-making.

Senator JACINTA COLLINS: I don't see how the bill changes that.

Mr Learmonth : One thing that, certainly, in the public sector—

Senator JACINTA COLLINS: You're going to build it into one of your performance criteria, are you?

Mr Learmonth : That's an interesting idea! I will put that to Universities Australia. Certainly, one thing the efficiency dividend does—and we are very experienced with this in the public sector; we're on about our third year of 2½ per cent this year, and we've had them since the eighties—is actually focus the mind on how you can live within your means and drive the outcomes and cut costs. They absolutely focus the mind.

Senator JACINTA COLLINS: So we may end up with measures like Australian workplace agreements as one of the performance measures; is that what you're suggesting, Mr Learmonth?

Mr Learmonth : I'm suggesting that—

Senator JACINTA COLLINS: They tried before.

Mr Learmonth : I'm suggesting, Senator, that I don't think anybody would claim that the universities as a sector are perfectly efficient.

Senator JACINTA COLLINS: I don't think they've claimed that either.

Mr Learmonth : Indeed not. But implicit in some of the claims is that there are no efficiencies to be found, hence the somewhat interesting claims about what will have to go as a consequence, as opposed to finding efficiencies. Clearly, they can. We've got some examples of the efficiencies that they have indeed been making, whether it be back-office reductions or amalgamations of some schools to streamline administration. There are a range of things that they they've done that we can give you examples of that go to their ability to sustain quality and product but take costs out of their operation. There are things that can be done. I did note that the Queensland Auditor-General said that only four Queensland unis have got any kind of cost management framework in place. Perhaps there might be more.

Senator JACINTA COLLINS: So that is Queensland and New South Wales. We might have to check the Hansard for precisely which states Universities Australia are referring to.

Mr Learmonth : I'm happy to go across the board. I've been going across the board.

Senator JACINTA COLLINS: Let's do that on notice, rather than take that time here, because I think referring to the Hansardwill reveal exactly where they were referring to.

Mr Learmonth : Happy to do that.

Senator JACINTA COLLINS: Okay. If we look, for example, at Victoria University, they said that they have to run a surplus in order to fund debt for infrastructure. Given the issues around the infrastructure fund, the EIF, what other ways will the department support universities with their borrowing costs?

Mr Learmonth : Mr English might want to say something on Victoria University. But what I can say to you is that the university sector as a whole is very profitable, it's well able to sustain capital operations, it makes significant revenue, it makes significant margins—

Senator JACINTA COLLINS: Do you agree with the Treasurer's estimate of a six per cent profit?

Mr Learmonth : Well, the average operating margin for the last reported year was 6.1 per cent.

Senator JACINTA COLLINS: Okay. Now, does that operating margin essentially mean what surplus they have achieved?

Mr Learmonth : Yes, that's an operating margin. It's revenue minus expenses.

Senator JACINTA COLLINS: Yes, so it's not taking into account what accommodation they might be making for capital.

Mr Learmonth : Equally, what I can say is that net assets have all increased. I'm talking about the 2014-15 shift. There was a reported surplus of $1.7 billion, funding was up 1.8 per cent, revenue was up 3.6 per cent, cash net assets were up across the sector from $46 billion and a bit to $49 billion, and cash investments were up from $13½ billion to nearly $15 billion. The sector is pretty viable and seems able to sustain capital investment from its operations quite well. [inaudible]

Senator JACINTA COLLINS: In fact, there was a figure put to us either today or yesterday about what levels of surplus they should be operating at in order to maintain and provide ongoing capital.

CHAIR: I think that was the charities—

Senator JACINTA COLLINS: Yes. Do you remember the level? Was it four or six per cent?

CHAIR: There was a charities and not-for-profits sort of guideline.

Senator JACINTA COLLINS: Yes. What level was it?

CHAIR: I thought it was between two and three, but—

Senator JACINTA COLLINS: No, I thought it was at least four.

Mr Learmonth : They are making over six, as last reported. They are also extremely low risk. This is securitisable. This is very low risk.

Mr English : In the case of Victoria University, which was mentioned earlier, the institution did run a deficit in the last couple of years, including a $12.1 million deficit in 2015, but that was at the same time as it had net assets of $815 million, it was holding cash and investments of $94.7 million, and it had no borrowings—

Mr Learmonth : Zero borrowings.

Mr English : Zero borrowings. It has a current ratio of 2.3, which is good in our benchmarking. It has only a medium risk—

Senator JACINTA COLLINS: The ratio of—

Mr English : The current ratio, which is—

Mr Learmonth : Current assets to current liabilities.

Mr English : So a medium risk reliance on Commonwealth funding of 60 per cent and a medium risk reliance on international student fees of 17 per cent. So, at face value, the causes of their ongoing deficit do not appear to be coming from the need to finance capital or sustain borrowings. At face value it would appear to be more about their cost structure and their staffing arrangements.

Senator JACINTA COLLINS: Or presumably other historical factors—

Mr Learmonth : Maybe.

Mr English : Maybe, yes. And many universities are in a situation where they maintain campuses for a range of community and state government obligations. Many of those do so consciously knowing that those campuses will be making a loss of some description on the operations at that site but built into a broader institution that operates within its budget. So lots of different circumstances confront all the universities across Australia. The overwhelming story you can draw from the funding position of universities in the last five or six years is that our funding model provides a viable basis for the provision of higher education. The Bradley and Clark report on higher education infrastructure—the HEIWG, as the working group has been referred to—showed that in the period 2011 to 2013 there was $10.6 billion, from memory, worth of property, plant and equipment investment made by Australian universities, of which 80 per cent—79½ per cent—was funded from surpluses generated by those institutions.

Senator JACINTA COLLINS: This is partly why you have got the frustration from the sector coming in—the suggestion that surpluses mean rivers of gold when, as you say, 80 per cent of them are going into ongoing investments of capital.

Mr Learmonth : It is all circular. They choose what to spend. Here's the revenue; here are the costs. They will determine where the margin goes between research, buildings, football teams, sponsorship, whatever it might be. It is all a little bit circular. The question is: is it inherently a viable sector?

CHAIR: Sponsoring football teams—talk us through that. Who is sponsoring football teams?

Mr Learmonth : There are a few of them. I will come back to you, if I may. What they do with the margin is their choice. Clearly the system, on the whole, is viable and sustainable and able to generate capital investment. What is interesting is that we are seeing more interesting models. There are very low levels of debt on the books—what people might call lazy balance sheets.

Senator JACINTA COLLINS: That seems to have been a historic—

Mr Learmonth : I think that is right, absolutely. What is interesting is that there are more creative financing methods happening. At Wollongong university, with the student accommodation, we had a university in talking to us last week about a PPP, a public-private partnership, with some of their land, and there will be a PPP with a construction firm and there will be some shared benefits. It is actually really creative and interesting. I thought they were very clever in what they were doing. So inherently viable, lazy balance sheet, but even with that they are almost completely self-sufficient—80 per cent of capital in recent history, and now they are starting to get more creative about how they do it.

Mr English : The point of the analysis of the per student funding levels in real dollar terms is to show that, even after all the changes that have been described as wrecking balls in various discussions, they are left at about the same level of real funding per student than they have had in that period 2011 to 2013. That is my point.

Mr Learmonth : Senator, you asked about sporting teams. I did say I would come back to you. We do not know all of them, obviously. There are a few we know about: the University of Tasmania sponsored naming rights for a stadium; the University of New South—

CHAIR: Do you know how much they paid for that?

Mr Learmonth : Not that one. The University of New South Wales sponsors or names a stadium in Canberra at, reportedly, $300,000 for three years. Swinburne has naming rights to the Richmond Tigers Punt Road Oval. There are sponsorship deals with Victoria University and the Western Bulldogs; the University of Canberra and the ACT Brumbies; the University of the Sunshine Coast and Sunshine Coast Lightning netball team. We talked a bit about this at estimates, as to the $275 million spent on marketing in 2015, and I think you made the absolutely appropriate point that we're out there trying to compete for international students as well; that is part of it—

CHAIR: Because they love AFL!

Senator JACINTA COLLINS: Or netball!

CHAIR: It's not played in China.

Mr Learmonth : It is not clear how a maths student in—

Senator JACINTA COLLINS: New Zealand?

Mr Learmonth : Guangzhou will be attracted by sponsorship of the Sunshine Coast Lightning. But, choices.

Mr English : It is also worth noting that, even in the academic sphere, the universities have been exercising choices and so, since 2009, the staff growth that they have been using—the increased funding associated with the demand-driven system—has resulted in a 25 per cent increase in above senior lecturer staff. Sorry; I have misread this. The above senior lecturer category of staff in universities increased from 25 per cent to 28 per cent between—

Mr Learmonth : If you would make two observations about what has happened with staff while this demand thing has been going on, one is that they have put more staffing money into above senior lecturers, so, perhaps, research, and the proportion which goes to teaching staff with the increased demand has actually fallen. The other observation is as to salaries. If you look at the period January 2011 to January 2017, salaries for university staff went up by 23 per cent. By way of comparison, the professional scientific and technical services sector broadly in the economy was 17, and for all industries it was 19.

CHAIR: Nineteen for the rest of the economy. And how much for—

Mr Learmonth : Seventeen.

CHAIR: Seventeen versus—

Mr Learmonth : Sorry; there was a category in the stats for professional, scientific and technical services; that is economy wide; that was 17; universities were 23.

Mr English : Again, all that is to observe that there are choices that have been made about the way they use their costs.

Mr Learmonth : Not saying right or wrong, but there are choices in context that are made.

CHAIR: No judgement.

Senator JACINTA COLLINS: Can I just close off on this on your funding table. What happened in 2011?

Mr Learmonth : Sorry?

Senator JACINTA COLLINS: It is in this table that was in the Financial Review today. We have got 2009, where it is 17½ thousand odd; 2010, when it is 18,700-odd; and 2011 where it is back down to 18,000 odd. What happened in that year?

Mr Learmonth : They of course stylised and chopped the axes for effect—

Mr English : It is more exaggerated.

Senator JACINTA COLLINS: No! Did that come out of the minister's office that way?

Mr English : No. That is the Fin Review.

CHAIR: The financial commentators.

Mr English : Yes. So in 2011—

Senator JACINTA COLLINS: You reckon the Fin did it, not the minister?

Mr English : Yes.

Senator JACINTA COLLINS: Well, we will find out!

Mr English : In 2011—if you recall, that was prior to the introduction of the demand-driven system; the demand-driven system started in 2012—universities voluntarily overenrolled their student numbers and drove down the average level of funding per student. So the base funding of 18,670 in 2010 fell to about 18,000—

Mr Learmonth : It is just an artefact of the enrolment practice.

Mr English : in 2011, but it was a conscious choice.

Senator JACINTA COLLINS: Sorry—'it was an artefact of'?

Mr Learmonth : Enrolment practice—what they choose to do. And remember: they chose to enrol—to overenrol, in fact—students for whom they get no funding, when the base funding was entirely comparable to what they will get in 2021 in real terms after the efficiency dividend. So, clearly, in that period—the left hand side of the graph—it was viable to expand significantly, and indeed to expand beyond the point that you were funded.

Senator JACINTA COLLINS: That is 2011, but the figure for 2020 in 2017 terms is not equivalent. It is a bit over $18½ thousand.

Mr English : The 2020 figure is effectively the same as the 2010 number and is higher than the 2011 number, when they overenrolled.

Mr Learmonth : And the 2009.

Mr English : And higher than the 2009. And that is the point that setting those numbers into real terms is trying to make—they are, on a per student basis, no worse off at the end of this reform process than they would have been at the beginning of the demand driven system, when they did increase their enrolments by large percentages across all institutions. Like I say, in 2011 there was the curious decision to actually undercut their own average student funding level by overenrolling compared to the amount that we were funding for in the fixed world.

Senator JACINTA COLLINS: What is the decline from 2019 down to 2020?

Mr English : That is a factor of the fact that it is a tiny change in the scheme of $18,600 versus $18,550-odd, and that comes about because the deflator we are using for that point is the 2020 CPI projection, but the rate of indexation that will be applied that year is actually going to be the 2018 CPI income, because we are always indexing in arrears, in effect, and so one being slightly higher than the other leads to a small reduction in the real value of the student supplementation that year, just because of the way the indices are expected to proceed from here. What actually happens over time will depend on the inflation figures as they evolve, but because the inflation adjustment applied in 2020 is actually the 2018 inflation outcome, it is possible for it to be a little bit different to what the expected inflation will be in 2020.

Senator JACINTA COLLINS: So where does the efficiency dividend wash out in these figures?

Mr English : In the fall between 2017 and 2018, and then again for 2018 to 2019.

Senator JACINTA COLLINS: Okay. So these figures are showing the further fall for the reasons that you indicated. I look forward to—

Mr English : There is no substantive change in the funding rates at that point, as I say, it is just the way the calculation of the real value works.

Senator JACINTA COLLINS: Yes, and whether there is a real increase in funding or not, which is why I say I will be interested in seeing the minister's response to the Parliamentary Joint Committee on Human Rights, in terms of meeting our international obligations on that point. But rather than try and absorb the detail around different indexation rates and assumptions, I will look at that bit more carefully, hopefully, when we see that in sufficient time before we report. Let me move on to another area—performance funding. We have heard that the minister has given assurances that any savings that come out of any penalties applied around performance funding measures will be reinvested in higher education and distributed to other universities. The question is: how would they be distributed elsewhere?

Mr Learmonth : That will be a matter that will be provided for in guidelines, as with the rest of the details of the performance arrangements, and that will be the product of consultation with the sector.

CHAIR: Mr Learmonth, there has been a lot of concern expressed in some of the evidence we have received that that all has to be done by the start of business next year. Can you please outline the process for development of the performance criteria.

Mr Learmonth : Certainly. Technically, the performance arrangement does start next year, but it starts in a very simple way that is not particularly new to the sector. For next year it will be contingent on the universities meeting two requirements, one of which is to meet the requirements of the action plan under the Higher Education Standards Panel for transparency, so students will actually understand the basis on which they can get entry to a university and to a particular course. That action plan from the standards panel has been heavily consulted. It was released recently to significant acclaim—I think that would be a fair word. The sector is very supportive of those directions, so we don't anticipate any difficulty in the sector meeting those requirements for transparency in admission.

Senator JACINTA COLLINS: This is why I say that the sector does seem to be at the 'how' rather than the 'should'.

Mr Learmonth : Again, the action plan has been welcomed and it will certainly be a benefit for students. The other aspect is the provision of data in relation to their expenditure. Again, that is not a particularly new thing. We have a model there that was worked through in consultation with the sector that supported the cost of delivery survey. That will be a very good starting point. We will potentially tweak that again in consultation with Universities Australia and the sector, having regard to the experience that we had with the cost of delivery. There may be some lessons.

Senator JACINTA COLLINS: So they are currently doing it?

Mr Learmonth : There was a data collection of exactly the type that we are talking about for next year done for the cost of delivery report that was published. So there is a model there. That model was worked up with the industry. I would not preclude some fine-tuning to that in the short term in consultation with the sector.

Senator JACINTA COLLINS: Have there been any compliance issues?

Mr Learmonth : Not that I am aware of. I think the sector had some concerns with the original proposition, but we worked closely and constructively with Universities Australia, and the survey that was implemented for the cost of delivery work was, I think, pretty good. Again, we will be able to refine that. But it is a pretty simple proposition for the first year: give us some data on what you spend and be transparent with your students against this action plan which has been welcomed.

The second year is where we will start to see some performance at risk, if you like, on some additional metrics. They will be absolutely worked up with the industry. There are a couple of things to say about this. Firstly, there is no incentive for anybody to other than get this right. There's no saving to government if you get it wrong, there's no saving to government if you make it harsh. It is entirely circular to the sector.

Senator JACINTA COLLINS: It is that circular bit that I am trying to understand.

Mr Learmonth : How it comes back is a matter that we will work through with the sector—and they will have views, no doubt. But, in terms of what might drive any redistribution—in other words, what metrics will be in place—again, they will be worked up with the sector. There is a sweet spot here between being so ineffectual as to be of no value and being so strong as to create some perverse incentive in terms of action. These things do need to be calibrated. They do need to be worked up with the sector, they need to be realistic and the sector has to develop confidence with them. So we do expect it to evolve over time.

Where we start, it is likely to be something around attrition. That is in some ways perhaps blunt but a measure of return on investment. If you are going to leave a demand-driven system in place, you will want something to focus the mind on ensuring that there is an outcome from that investment—a student gets a degree and gets a job—and from, indeed, the loans the student might take on. So it is not a bad one to start. But how we operationalise that will have to be done with the sector. It is going to be nuanced and sensitive to circumstance. We don't intend it to be an across-the-board cookie cutter; there will be some nuance in relation to an individual's mission. The easiest way to do that is to make it relative to an individual's performance over time rather than against some notional benchmark. So there are ways to do this that will focus the mind on the things that matter, which will not drive perversity, which will be delivered.

CHAIR: So, just to reiterate: so, for those universities servicing communities such as rural and regional Australia, low-SES and outer Sydney and outer Melbourne—those sorts of students who, simply as a function of a whole lot of outside of university factors are more likely to attrit—you are saying that any attrition parameter will be able to take that into account?

Mr Learmonth : I would say two things, one of which is absolutely. The easiest way to do that is to make the measure not an absolute one but a relative one—for example, did you improve on last year? That absolutely takes into account the mission, the catchment and so on.

Senator JACINTA COLLINS: But, depending on the elements of the circumstances that you're dealing with, you might be at a peak—you may be at an attrition peak.

Mr Learmonth : You may be, but, again, you can smooth that by looking at something like a rolling three-year average. I do not want to get ahead of ourselves, but there are ways to make this reasonable.

CHAIR: But we have to clarify that it is going to be some blunt—

Mr Learmonth : It's not going to be blunt. It's got to be workable. It's got to have the confidence of the sector. At the end of the day, I'm sure the Senate will consider disallowing it at the time.

Senator JACINTA COLLINS: I am still a long way convinced that the discretion should be allowed at the outset.

Mr Learmonth : The other thing to say about this is that there's a question: 'Why have it? Gosh, we're accountable in these many ways.' But the simple fact is that when you look at the—

Senator JACINTA COLLINS: I don't think anyone's saying that.

Mr Learmonth : I thought I heard that earlier. I've certainly heard others say it. When you do look at the distribution of, for example, attrition, it's clear that, whilst most providers experience attrition rates from a reasonable pool, there are outliers, and those outliers are unrelated to their student populations, catchments and dynamics. There is a genuine issue.

Senator JACINTA COLLINS: All I've heard others say is that there are other ways to do this. There are other ways to foster performance change.

CHAIR: I've heard concerns.

Senator JACINTA COLLINS: There are concerns about how it might apply, and the point that you're raising there is valid. I'm still back at the question: why would we allow this level of discretion in legislation at this stage, given the extent to which it's been developed?

CHAIR: Because we've got the disallowable—

Senator JACINTA COLLINS: No, I don't think that's a satisfactory answer in terms of legislation. Are you drawing on a model where this has been applied elsewhere, or is this all just new innovation?

Mr Learmonth : There is no doubt—let me just find some examples—that this is a feature in other jurisdictions. There are some 35 states in the US, for example, which have performance-contingent funding. In fact, in Tennessee, almost 100 per cent of its funding is based on results and not on load. There are examples around the world. I think what we would like to do is to develop something for our own context. We will undoubtedly look at the experience in some other countries. There is literature available. For example, I've had some provided to me by Grattan which will be most useful. So we'll try to learn the lessons in this about what other jurisdictions have done and where some pitfalls might have been. We really don't want to create unintended or perverse consequences. We want to work this up with the sector, and we will be informed by international experience on this, but it's got to work for our context and our system.

Senator JACINTA COLLINS: I agree, and I look forward to something like a green paper process that will take us down that path. I just don't think we should legislate the cart before the horse.

CHAIR: Well, when you're in government you can.

Senator JACINTA COLLINS: No, you can't, actually.

CHAIR: You can't do a green paper process?

Senator JACINTA COLLINS: You can do that, absolutely. If the minister withdrew from persisting with attempts to legislate this and moved forward with a green paper process, that would be great.

Has the department prepared any alternatives to the arrangements in the package for consideration?

Mr Learmonth : You're asking about advice to government in the budget context.

Senator JACINTA COLLINS: Okay. I just have a few questions around the postgraduate voucher scheme. It has been described as a scholarship scheme when it's simply changes to distribution of Commonwealth supported places at postgraduate level—or am I missing something in why it attracts the scholarship element?

Mr English : The difference is that it's direct to the student.

Mr Learmonth : It's direct to the student; it's not on an institutional basis. It's one of the themes of this whole package.

Senator JACINTA COLLINS: That's not part of the meaning of 'scholarship'.

Mr Learmonth : I think it's an easy shorthand. I wouldn't attach too much more to it. But certainly this is one of the minister's themes in this particular reform package, which is about making it more student-centric. The proposal is reasonably clear insofar as it would be very hard to say that the current distribution of postgraduate places is appropriate. It is based on some accumulation of historical decisions. You couldn't say, therefore, that it goes to where it's needed. The fact that 4,000 places in the last year were actually not used—that funding went begging—is alone evidence that there is unrealised potential in the system and that people who would wish to have a postgraduate place are probably not getting one. So it's reasonably clear that the current system is not working terribly well.

Senator JACINTA COLLINS: I don't think anyone's arguing with you on that point either.

Mr Learmonth : The way in which the new system will work should see an increase in the number of people who are supported in postgraduate given that it will be portable and the students will be able to choose where they go. We are also talking about a minority—a large minority, but a minority—of the postgraduate scene. The funded places are about 40 per cent of the postgraduate load in universities, but it's an important 40 per cent. How it will work, again, will be one of those things that we will work through with the sector. What I can tell you is that we are absolutely not looking at some new bureaucratic body to do it. The last thing I think we need is more people sitting in the department deciding where places ought to go.

Senator JACINTA COLLINS: We are not talking about six new agencies for this?

Mr Learmonth : We're not talking about new agencies. We're not talking about more bureaucrats.

CHAIR: Can you repeat that again for anyone listening out there?

Mr Learmonth : We are not talking about new agencies. We are not talking about more bureaucrats. We are talking about our contractual relationship with one or more providers in the non-government sector who will do this. We heard this morning, for example, that the New South Wales tertiary admission centre thinks this is eminently doable. It is not at all different to what they do now, and they would have some capability to do it. There are people out there who can do this sort of thing. What I can tell you is it won't be a bunch of bureaucrats in an agency.

Senator JACINTA COLLINS: What we heard this morning was concern that this was a missed opportunity in that we have a package that people have concerns with because of limited detail. There is an opportunity to do a range of things, but the detail is not there to convince those that might need to legislate it that it should happen that way.

Mr Learmonth : The glass-half-full version of that is that there is a system which is clearly not working in terms of its distribution and utilisation which has the potential to be significantly improved in terms of a complete take-up of available resources, a better distribution and a student-led distribution. The way in which we will do that—here is the opportunity, as with all of the other elements of this package, for the sector to collaborate and work with us on making this work and successful. We want to make it successful; I'm fairly sure the sector does as well. It is a process of sitting down and working through with them how this will work.

Senator JACINTA COLLINS: For example, for the scholarships or vouchers, it may well be the case that you are looking at establishing priorities, such as STEM, workforce shortages, public good, high community benefit—they may well indeed be part of it.

Mr Learmonth : They may. This will be something that will be worked through. Sorry, no more staff for you!

Senator JACINTA COLLINS: Sorry?

Mr Learmonth : I was apologising to Mr English that he won't get any more staff to do this no more bureaucrats.

Senator JACINTA COLLINS: Amazing how much humour we can have in places like Wodonga, Chair.

CHAIR: We should get out to the regions more often.

Senator JACINTA COLLINS: Is there a regulatory impact statement?

Mr English : There are processes complied with in the preparation of the cabinet submission, yes.

Senator JACINTA COLLINS: So there is one?

Mr English : Each of the measures was assessed through the regulatory impact assessment process.

Mr Learmonth : A RIS isn't required with everything. There is a triage process by which a judgement is made within a framework about whether or not a full RIS is required or what response is necessary.

Senator JACINTA COLLINS: That is what I am asking—is there one?

Mr Learmonth : Mr English's answer was that the regulatory framework was complied with as part of the cabinet process.

Mr English : No, there is not a RIS per se. There is not a requirement for a published RIS.

Senator JACINTA COLLINS: But is there a RIS?

Mr English : No. There were regulatory impact assessments made of all of the NPPs in the cabinet process, and the assessment determined there was not a need for a regulatory impact statement.

Senator JACINTA COLLINS: On what basis was that determined?

Mr English : Broadly, the arrangements here do not increase the regulatory impact.

Mr Learmonth : The basis on which there is a framework was in the office of regulatory—

Senator JACINTA COLLINS: I am reading it here:

The Office of Best Practice Regulation (OBPR) considered short form Regulation Impact Statements that were prepared for the measures in the 2017-18 Budget higher education reforms and agreed that the measures in the Bill have no or minor regulatory impact …

In a sense, there has been a statement done, which is that there is no or minor regulatory impact.

Mr Learmonth : There has not been a RIS per se. People conceptualise a RIS.

Senator JACINTA COLLINS: Because of a conclusion that there was no or minor regulatory impact.

Mr English : For example, the changes to loan schemes are changes in the way the existing scheme works. In effect, there is no additional regulatory requirement for people to comply with to access the loan or to repay it. It's similar across the board.

Senator JACINTA COLLINS: Performance funding criteria?

Mr English : The impact for that is minor in that it will—

Senator JACINTA COLLINS: Or unknown at this stage?

Mr Learmonth : Not the regulatory environment. The performance will rest on data that is provided. They already provide a range of data. They will provide more under the transparency measure. There will not be any significant regulatory requirement as part of the performance fund. It will be based on the data they provide us.

Senator JACINTA COLLINS: The chair has just indicated to me that she has some questions, so I will put on notice the remainder of mine.

CHAIR: Thank you very much, Senator Collins. I know Grattan went to this yesterday, but can you explain to us what will happen in relation to the sustainability of the system, if these reforms do not pass? I want to understand the impact of these reforms not passing.

Mr English : The first point would be that we will not achieve better distribution arrangements for key elements of the system that are currently not working effectively—so, the sub-bachelor distribution, postgraduate distribution and the enabling scheme arrangements. We could make some of those changes but we need legislative backing, for example, to vary some of the enabling loading arrangements.

Senator JACINTA COLLINS: What do you mean by that?

Mr English : The abolition of the enabling loading needs legislative change to achieve that. The main—

CHAIR: Some of those are the equity kinds of changes—

Mr English : Yes, changes to the equity scheme—

Mr Learmonth : Changes to HEPPP.

Mr English : roll through in legislation, and so the move to fund equity places on a per student basis rather than as a fixed bucket with a regulatory distribution is a reform that the sector has been most keen on. I think I can say that it is probably unique in having unanimous support across the submissions so far to your committee. That has to be done through the legislative changes that are currently in front of the parliament. The more significant issue is, of course, the funding changes that are needed to address the unlegislated changes from the 2014 budget would not be able to be achieved, and so there would be a $3.5 billion hole in Commonwealth financing that would need to be resolved through alternative means—

CHAIR: What would some of those alternative means look like?

Mr English : The minister's discretion in terms of the way funding is distributed to the sector outside of legislative change can only be exercised in areas where, for example, the other grants schemes in the act allow the minister to make payments up to an amount rather than require him to make an amount of payment, and that includes areas like the block grant funding for research and the equity funding that currently exists in the schemes as a block grant.

CHAIR: What else, Mr English?

Mr English : We could put out fewer postgraduate CSP places. We could reduce the sub-bachelor and enabling CSP places. They are defined places that we put now. We could also reduce the number of enabling places that we support to make a saving in the enabling loading. We could reduce the National Institutes grants, which are currently going to four or five key national institutes and, as I said, the research support and research training programs.

CHAIR: They are the mechanisms available to address the black hole that would occur if these reforms were not passed?

Mr Learmonth : That could be made without relying on legislation.

CHAIR: It being 4 o'clock and there being no more questions, I thank the witnesses, Hansard, the secretariat, broadcasting and everybody for coming to the regions. This is probably my last hearing as chair of this committee. It has been great.

Committee adjourned at 15 : 59