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Tuesday, 24 February 2015
Page: 1154

Mr FLETCHER (BradfieldParliamentary Secretary to the Minister for Communications) (18:27): I am pleased to rise to speak on the Higher Education and Research Reform Amendment Bill 2014. This is an important bill which will expand opportunities for students, in particular disadvantaged and rural and regional students, and ensure that Australia has a world-class tertiary education system.

This bill has been significantly amended, when compared to the bill that went through the House of Representatives but not the Senate last year, but nevertheless it preserves the essential elements of the higher education reform policy package, which the Abbott government and Minister Pyne are pursuing.

In the time available to me this evening, I want to make three arguments: firstly, that universities are critical to our national economic performance; secondly, that today Australian universities are seriously constrained in the way that they operate; and, thirdly, that the changes embodied in the bill before the House will free up universities to be more competitive, more flexible and, in turn, to be higher performing.

Let me turn firstly to the point that universities are critical to our national economic performance. You need only look at some of the indicators of the economic importance and significance of universities. There is evidence that improved investment in education delivers significant economic returns. The OECD has estimated a net present value of around $104,000 per man and $71,000 per woman who are university educated, attributed mainly to the higher lifetime taxes paid by a university graduate in excess of the direct costs of funding the additional university place. I hasten to add that the difference between the two figures for a man and a woman reflects the time that women typically take out of the workforce to look after children.

Secondly, universities play a very important role as an employer. According to a policy note issued by the Group of Eight universities, in 2012 there were more than 112,000 full-time equivalent employees in the public higher education system, and that system generated around $25 billion of revenue.

Another important argument as regards the economic importance of universities is the return on investment in research and development. The Universities Australia pre-budget submission in 2014 looked at a large number of studies conducted in a wide range of countries over a 30-year period to the mid-1990s. These studies consistently found that the rate of return on investment in research and development is high. Equally important, of course, is the fact that innovation from research and development—in which universities play a key role—is a very important driver of per capita income growth, increasing productivity and living standards.

I think we can cast some further light on this subject of the importance of universities to economic performance by considering the experience of the United States, a country which is widely recognised as having the best research universities in the world. I want to refer to a very interesting book written by Jonathan Cole, the former provost of Columbia University, entitled The Great American University: Its Rise to Preeminence, Its Indispensable National Role, Why It Must Be Protected. In his book, Dr Cole notes that, as at 2009, 40 of the top 50 universities in the world were in the United States, according to a research based assessment from the Shanghai Jiao Tong University. He notes that, since the 1930s, around 60 per cent of all Nobel prizes have gone to Americans and that a very high proportion of leading new industries in the United States—perhaps as many as 80 per cent—are derived from discoveries at US universities. He cites the laser, FM radio, the Google Search algorithm, GPS, DNA and fingerprinting, just to name a few. He had this to say:

… universities have evolved into creative machines unlike any other that we have known in our history—cranking out information and discoveries in a society increasingly dependent on knowledge as the source for its growth.

I think there are some important lessons for the Australian higher education sector in the observations made in this book regarding the importance of higher education in contributing to national economic competitiveness.

My views in this area were strengthened when I had the good fortune to visit Silicon Valley at the start of the year and, amongst other things, to attend a presentation given by Coursera—the well-known although relatively new company established by two Stanford University computer science professors. It operates MOOCs, Massive Online Open Courses, which allows millions of students to take courses online from well-known academics at Stanford and other prestigious universities around the world, including Melbourne University, the University of New South Wales and the University of Western Australia. These are exciting developments for the universities involved, but they also mean that every university needs to think very carefully about its competitiveness, including its competitiveness internationally, what its position is in the market and how it is to sustain that position.

I think the other important and interesting lesson to draw from the US experience is the importance of private funding as part of the overall funding mix in the US system. According to a 2013 document issued by the OECD, Indicators: education at a glance, US expenditure on tertiary education as a percentage of gross domestic product is significantly higher than the OECD average, but a significant proportion of that expenditure comes from private sources as opposed to government funding. In Australia, our total expenditure on tertiary education as a percentage of GDP is much lower than in the US. If we can get more funding into our system from private sources, we can increase total funding into the university system, we can make our university system stronger and we can make it a more important contributor than it already is to economic performance and innovation—something which is so critical to the modern knowledge economy.

The other trend which clearly emerges from the OECD work is that there is a substantial level of private funding at the tertiary level across most OECD countries and over time that is growing. That of course is no surprise. Despite the wishful thinking we hear from speakers from the other side of the chamber, no government is in a position to fund without limit its tertiary education system when it faces so many other demands on the public purse. Governments around the world are facing many of the same issues as the Australian government in terms of how to achieve the continued growth of the education system, how to allow it to meet the needs of an ever-growing proportion of the population and how that is to be funded. The previous government had no plan to deal with that. This bill embodies a plan to deal with that issue.

This brings me to my second point, which is that, thanks to the incompetence of the previous government, universities in Australia today are seriously constrained in how they operate. Under the previous Labor government we saw an uncapping of Commonwealth supported places. That was a sensible thing to do, as far as it went, and this government is maintaining the demand-driven system. But, in the deregulation of student numbers, the previous Labor government did only half the job—they failed to deregulate the setting of fees. In other words, they deregulated quantity but not price. It was a half-hearted attempt at deregulation. The consequences of this are very significant. Universities today have little scope to differentiate or, should they be in a position to do so, they have little scope to capture a premium for being able to offer a premium product.

At the other end of the spectrum, the current system discourages universities from choosing to discount or to compete on price. As a corollary of the current arrangements, there is very heavy reliance on international student fees as the principal area where universities are relatively free in their price setting. Ian Young, then vice-chancellor of the Australian National University, had this to say last year in remarks which I think sum up the position very well:

We have universities that enrol large numbers of students, teach them as cheaply as possible, and then use the income to cover both education costs and meet the shortfall in research funding.

He went on to say:

This is why our major research universities typically have student populations of more than 40,000 students. Compare that to Stanford with 15,000 students, Cambridge with 18,000, Tokyo with 28,000, ETH Zurich with 18,000 and the outstanding Caltech with only 2200 students.

As the G8 universities have pointed out in a recent research paper, much of the problem we face goes back to Gough Whitlam. Whitlam set an expectation that the costs of those who benefit personally from higher education should be paid substantially by those who do not. In doing that, he markedly changed the principle which had for a long time previously applied to higher education in Australia—namely, because students derive very substantial private benefit from having a degree due to their increased earning power, it is fair that they contribute towards the cost of the degree. We are left today with a system which continues to be in large measure a legacy of Whitlam, in which by far the largest source of funding for universities is government. This creates significant constraints on universities at a time when they face ever more intense global competition. We should be concerned that many top-ranking Australian universities are slipping in international ranks year-on-year. This brings me to the third area I want to address: the way that the government's changes embodied in this bill will free up universities to be more competitive and flexible and, hence, higher performing.

The deregulation embodied in this bill is a logical next step in an ongoing reform process. It will give universities more autonomy and flexibility, and they will be free to compete on price and course offerings. To again quote Ian Young:

Deregulation will enable universities to differentiate, to play to their strengths.

The measures contained in this bill are consistent with the course of higher education policy development in Australia over the last 30 years.    They arise from a path of incremental steps that have been taken over time to improve responsiveness to changing education policy.

I do want to emphasise that, despite some of the rhetoric that we have heard from the other side of the House, this package contains a number of very important equity and fairness measures. The bill, as amended, will introduce a dedicated scholarship fund for universities with high proportions of low-socioeconomic status students that will be funded directly by the Commonwealth, and that will be on top of university based scholarships. This will add to the already generous Commonwealth scholarship scheme proposed, with an additional package of scholarships funded by the Commonwealth. This will mean that thousands of students from disadvantaged backgrounds and in rural and regional communities will have even more help to get to university, particularly in their local area.

The Commonwealth will for the first time be supporting all Australian undergraduate students in all registered higher education diplomas, advanced diplomas and associate degrees as well as in bachelor degrees. The Vice-Chancellor of the Australian Catholic University, Greg Craven, in an article in The Australian last year addressed some of the overstated and overblown claims that have been made about the equity impacts of the measures the government is pursuing. Speaking of education minister Christopher Pyne, he said:

... Pyne has retained and extended Labor's great initiative: open university entry for every qualified person, under the demand-driven system. In real equity terms, it is much more important the kid from Panania gets their chance than the price of decorative arts-law at Sydney stays steady.

As a graduate in arts law from Sydney University myself, I thought that particular rhetorical flourish was a little cruel. Greg Craven further said:

… in a scarcely remarked move, Pyne has moved decisively to protect students entering lowly paid but socially vital professions. Yes, public support for students will decrease overall, but the cut to nurses and teachers, for example, will be noticeably less, recognising their relatively limited earning opportunities, as well as the comparatively low cost of providing their degrees.

That is an important recognition from the vice-chancellor of a university which, as he notes in his article, educates quite a number of Australia's nurses and teachers. That is an important recognition of the equity aspects of the package before the House and highlights the point that some of the criticisms that have been made of the equity implications of the package are very much overblown.

This bill contains some important additional safeguards—for example, by amending legislative guidelines so domestic fees are lower than international fees. The government has committed to maintaining the HELP loan scheme so that no student need pay a cent up-front for their higher education until they graduate and are earning a decent income—over $50,000 a year—as a result of their education.

Finally, much of that overblown commentary about the equity implications of this package tends to ignore the reality that the universities will be operating in a competitive market; they will face a market discipline. It will not be open to a university to set fees which are conspicuously above those charged by its competitors. They will be subject to the same market disciplines as anybody operating in a market.

The package before the House, including the elements that have been added as compared to the earlier version of the bill that passed this House last year, is very important and continues a reform direction in education that has been underway for some time. This package recognises the importance of our universities being high performing. It recognises the importance of universities being free to chart their own course and gives them much greater freedom to do that than they have had under the previous heavily regulated arrangements. That is important for universities, that is important for students but, most of all, it is important for our national economic performance because universities are such a critical part of our economy.