Uni deregulation to blow-up deficit

By Leith van Onselen

Ben Phillips, principal research fellow at the National Centre for Social and Economic Modelling (NATSEM), has presented analysis claiming that the Abbott Government’s plan to deregulate university fees would raise inflation and drain billions of dollars from the Budget over the long term, rather than saving taxpayers money as originally intended. From The Canberra Times:

The inflation rise would have a knock-on effect on the budget through higher benefit payments linked to the consumer price index, Mr Phillips said.

“Only under the most optimistic fee scenarios would it be likely that the proposed package would save the government money in the future,” Mr Phillips told Fairfax Media. “The fiscal outcome is not likely to be a deficit reduction measure. Rather it would increase the deficit into the future”…

Mr Phillips said a 50 per cent increase in student fees – which he described as a cautious estimate – would lead to an approximate 0.7 percentage point increase in the CPI. This would cost the budget approximately $1 billion extra a year in payments to welfare recipients including pensioners, carers and the disabled…

The government’s commission of audit found the budget would not benefit from higher fees and could be left worse off because of an increase in bad loans.

The findings support those of Professor Stephen Parker, vice-chancellor of the University of Canberra, who in December noted:

A fundamental feature of HECS is that the Government forwards all the money upfront to the University. So if fees go up…, the Commonwealth shells out more from day one. Default will rise. More students will work overseas – legitimately, this is not evasion – and so only through some arcane aspect of accounting standards can this even look as if it is a savings measure.

This isn’t a savings measure: it is ideology in search of a problem.

There is another avenue by which higher university fees could damage state and federal budgets: by reducing enrollments in private schools.

Indeed, some of the parents that I have spoken to about this issue have said that they are now considering sending their children to secondary public schools and using the money saved to help pay for their child’s university education.

Budget issues aside, I remain opposed to the Coalition’s university reforms for a number of reasons.

First, Australian students already pay a higher proportion of their tuition than those in most OECD countries, and fee deregulation would likely result in significant increases in student debt levels, acting as a millstone on their futures.

Second, the impact on women and certain socially beneficial professions would also be particularly bad, as NATSEM’s Ben Phillips has demonstrated when modelling the likely HECS debts of female scientists, nurses and teachers based on typical career trajectories.

Finally, there is no guarantee that the increased fees would be used by universities to improve the quality of teaching/courses. Rather, it is just as likely that they would be used to pad universities’ administration departments, to beef-up research, or any number of other follies.

Thankfully, the cross-bench senators are standing firm and have retained their opposition to the Coalition’s university reforms, meaning they are unlikely to ever see the light of day.

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  1. Finally, there is no guarantee that the increased fees would be used by universities to improve the quality of teaching/courses. Rather, it is just as likely that they would be used to pad universities’ administration departments, to beef-up research, or any number of other follies.

    A very likely outcome for “positional goods” such as elite universities.

    Positional goods do not follow the same rules as non-positional goods. They tend to result in an “arms race” in which costs rise to meet capacity to pay.

    In an arms race there is no point coming second. Prices rise to pay for ever more marginal improvements in quality, but such marginal improvement are necessary to maintain the top position.

    The result is that as long as there are wealthy parents who can afford to pay, the elite universities will find ever more ingenious (and less productive) ways to spend their money.

    In the process, the children of other parents (other than a tiny number of scholarship winners – and even this might be gamed by ambitious parents) will be excluded.

    It is a system guaranteed to to entrench existing hierarchies of wealth and prestige . . . which is exactly why it is being promoted.

    • Not entrench existing hierarchies…re-introduce old hierarchies which have been eroded by the far greater access to higher education compared to the mid-sixties.

      People from state schools who enjoy a combination of luck, brains and hard work can go to a G8 uni and graduate ahead of people from top private schools, reducing the latter’s positional efficacy.

      What’s the point of going to Scotch College, or even Saint Ignatius College, Adelaide if people from state schools can use uni to catch up in status, even part of the way?

    • +Many

      This policy will not only force graduates OS but it stifles there ability to realise their full potential due to financial stress.
      Here is a great article from Rolling Stone detailing how their banks are making Super Profits out of student loans and the resultant stress(some case suicide) of this situation.


      “This isn’t a savings measure: it is ideology in search of a problem” +M says it all

    • +10.

      Also, just like the primary / secondary education systems which have a higher proportion of private school students than probably any country in the world.

      Again for ideological reasons, not efficiency or equity reasons.

      Gough must roll in his grave at the perversion of his 1970’s initiative to provide state aid to R.Catholic schools.

    • Yep….. education as a two tiered market with one being a Veblen good.

      Skippy…. Bravo Stephen Morris…

      • Some more on the contrast between positional and public goods:

        “It is worthy to underline that in the case of positional goods, agents benefiting from a positional good do not take into account the externalities of their respective sufferers. That is, in the case of “public […] goods, the consequences of this failure implies that an agent consuming the public good does not get paid for other people’s consumption; in the case of a positional […] good, the equivalent failure implies that an agent consuming positive amounts is not charged for the negative consumption of other agent’s consumption” (Pagano 1999:71). That is, while, in the case of public goods, we have the standard underinvestment problem in their supply, because excluding individuals from externalities that have the “same sign” may turn out to be impossible, by contrast, in the case of positional goods, we have a problem of over-provision, because all agents may try to consume positive amounts of these goods, neglecting to consider the externality on others. For public goods, an under-supply, for positional goods, it signifies an over-supply. In other words, in positional competitions, people work harder and consume more than they would under optimal conditions.”

    • Well said Stephen. It’s academic snobery. All we’ll get for our troubles is a fee race to see which university will become Australia’s Yale or Harvard.

      • The chances of there ever being an Australian Yale or Harvard are similar to Admire Rakti’s chances of winning the 2015 Melbourne Cup.

    • Stephen you know I agree with you on the inevitable outcome, an entrenched elitist university model. That’s a positive, not a negative!

      University education (most disciplines, or more correctly, courses) will be delivered in a vastly different manner within a decade or so. Perfect for routine degrees which most aspire to. Affordable too.

      It’s a 21st century return to… 😉

      • 1. Other than personal preference, by what criteria is a return to entrenched elitism “a positive”?

        2. If it is only personal preference, by what principle (other than another statement of preference) is that preference privileged over the preferences of other people?

        3. If there is nothing here other than statements of personal preference for a return to entrenched elitism, why try to dress it up as anything else?

      • If its such a good model 3d then historically why does it always end in tears, Spartans, Rome, the 12 holy families, China’s dynasty, the Gilded age, et al.

        By the education is not just about getting a yob to make monies, its about creating an informed citizenry [voters is dumb meme overkill].

      • @infotech
        MOOCs or similar. Many courses restructured and shortened to be far more vocationally oriented (teaching, nursing, most BA stuff, most general science etc)

        Education on demand, as and when required professionally (or personally)’. Traditional university models are not flexible enough to cater for at present.

        Eventually open entry. If you can do the course, go for it, regardless of prior education. Naturally some disciplines will require academic skills exempting others, but it will be quite a natural fit.

      • None of which addresses the question of why a return to entrenched elitism (the primary purpose of an elite university system based on capacity to pay) is a “positive”

      • @stephenM

        Actually I’m not dressing it up. I support the notion of a superior education being available to eligible students.

        It’s a positive in the sense it will revolutionise our current educational models. Most university courses could be well delivered via online means, far cheaper, more flexible and open to all. The enormous savings achieved from closure or restructure of a number of bricks and mortar campuses can be redirected to other expenditures.

        This is true egalitarianism. Every one has the opportunity to achieve a basic degree in a cost efficient, skill sufficient manner.

        The so called elite universities will provide services catering to the disciplines not entirely suited to the more general applicant. Offering academic rigour, superb research facilities and yes, at the end, a prestige may be attached to these Degrees. Bravo!

        As for the payment question. There will no doubt be various stipends and scholarships to assist, both corporate and government sponsored. One may assume those students having completed degrees at so called elite institutions may also achieve a premium in the market. Indeed, it may transpire that these institutions can offer courses at reasonable levels as a result of funds being redirected from wasteful existing spending at second and third tier institutions as these institutions remodel to the new paradigm.

      • 3d you need to bone up on whats happening with this agenda you have, with the facts on the ground in America.

        Looting for entrenched management, crammed down staff, papers pushed not on merit but as a marketing tool and reduced education for the rest, the online stuff is just a pure marketing scam.

        Skippy…. are you like mig-i and just think this stuff up in your head? Validate by bias conformation only?

      • the online stuff is just a pure marketing scam.


        agree that 3d1k’s view of what online education can deliver is pure fantasy, as do Sebastian Thrun and Daphne Koller; disagree that it is a scam. More a first round of experimentation that has delivered slightly underwhelming mixed results.

      • Stat even Gates Core is shambolic, additionally today College does nothing more than indoctrinate you into the corporate structure and that is really not an education.

        This is what you get for letting money front economics [cough sociopolitical theory] as the end all be all of public policy making.

      • Skippy…. are you like mig-i and just think this stuff up in your head? Validate by bias conformation only?

        The minebot is a faithful foot soldier of the elite, and will promote – with varying degrees of dishonesty – any premise, principle or policy that further entrenches their wealth and power, with no care whatsoever about the negative impacts on the rest of society.

      • This reflects a basic misunderstanding about the primary purpose of elite (Ivy League, Oxbridge) university systems.

        They are not primarily about education.

        They are primarily about allowing the children of the current Elite (plus a tiny number of newcomers – generally those who have demonstrated a commitment to the Establishment) to form the social networks which will allow them to extract rents, maintain their social status and power, and thus become the Elite of the coming generation.

        It is primarily about entrenching privilege.

        In your own words:

        “I agree with you on the inevitable outcome, an entrenched elitist university model. That’s a positive, not a negative!”

        In what way is that a “positive”?

        As for wasteful spending, positional goods encourage wasteful spending. That’s the whole point of them!!!

      • SM,

        I think 3d1k understands all that far more deeply than you imagine:

        tiny number of newcomers – generally those who have demonstrated a commitment to the Establishment)

        Isn’t that exactly where he sees himself in all this? What’s the point of kowtowing to the elite if there are alternative means of acquiring the same benefits?

        3d1k’s vision implies separation of education into a stream for people who acquire knowledge and skills and another stream for people to acquire status, none of this messy blending of the two we have now.

        Uni education will become purely useless, like fine art, rather than a luxury good that can be used for something, like a Rolls-Royce or even a Louis Vuitton bag.

      • Stat,

        Again you resort to simplistic rationalizations which have no bases in rigorous methodology as applied to observable data. The amount of studies which are not directly funded to arrive at a predetermined outcome do not support yours or 3d personal preferences. Actuality its quite the opposite, hence the need to use fraudulent means to support your opinions.

        Skippy… its blatant heraldic lamarckism.

        PS. enough with the dead Hubert Spencer shtick, he died a grumpy old has been, grow up.

      • This isn’t my vision – it’s my understanding of what 3d1k hopes to gain in all this. My personal preference couldn’t be further from this vision.

        Read it again, you’ve missed the point by a country mile, just as you did with your previous reply.

      • Amends, online scam trip wire ankle tapped me, I know to much about it here, English schools et al which is expanding into degree up grades for OZ’ies [sons day job whilst in Uni, not everywhere but they need to nip it in the bud now!]. It seems OK for early stuff or those that got left behind after HS and need more Cert, after that not so much.

        America is just a wallow of fraud wrt it, 11 billion for the photographer one alone. Its the bloody securitization incentive compounded by bleeding off cash flow to club members.

        Skippy… again sorry…

      • No worries.

        It seems OK for early stuff or those that got left behind after HS and need more Cert, after that not so much.

        I can see that. I think we will find, as Thrun already has, that there are a handful of areas where this study mode works well.

  2. Great comment: “This isn’t a savings measure: it is ideology in search of a problem.”

    A very slippery road down the American path of “higher” education, one which Australia needs to get off ASAP and tread down the Northern European model.

    But, that requires some lateral thinking (hell, even just thinking) and hard work, both of which are not in the nation’s palette….

    • We are gone. I have every confidence in the utter she’ll-be-right sell-out-to-anyone me-only survival-of-the-stupidest wankery of this country. Every confidence.

      We’ll soon resemble an amalgam of Zizek’s authoritative asian capitalism and US brand neo-liberal parasitism.

      Which is why my family’s plans to flee are well advanced.

      • “Which is why my family’s plans to flee are well advanced.”

        And I’m very thankful that my wife and two daughters have EU citizenship (and I can get mine by right-of-residency).

      • “Where can one flee to? even if you go to Europe there is high youth unemployment there as well.”

        Damn good question and I’m not sure I have an answer. The US may be improving (though I still have grave doubts about that) and Europe may still be attractive depending on what happens in Australia over the next decade.

        In my case we wouldn’t be going anywhere for a while yet as my daughters are still in school. Certainly university education in Europe looks far more attractive than Australia or the US.

  3. I’m laughing at this.

    Senator Leyonhjelm, originally a supporter of the government’s reforms, said he found the NATSEM analysis concerning.

    “My rule is that I won’t vote for anything if it will cost taxpayers money – someone has to stop taxpayers being screwed,” he said.

    Pyne is doing a great job if he can’t even get Leyonhjelm to sign on!

  4. Obviously NATSEM are not factoring in Stage 2 of the LNP’s plan to destroy public universities – using the increased deficit to justify the privatisation of HECS benefits for students.

    I mean that’s the real money spinner here isn’t it? Private student debt.

    • 1. The creation of an indentured workforce.

      2. Returns going to the original owners of capital, either:

      a) to children of wealthy parents; or

      b) to HECS lenders (for those who are not wealthy enough to pay up front).

      Just as Piketty describes.