Are Australia’s universities under-funded?

Cross-posted from The Conversation:

Since the 1990s, it is said, Australian universities have become ever more under-funded and over-reliant on fee income. Internationally we seem to lag our peers, as governments short-change the sector, our students and society.

Some claim that in 2011 Australia’s public spending on universities “ranked thirty-third out of the thirty-four OECD member countries”. While governments across the OECD spent an average of 1.1% of their GDP, Australia spent just 0.7%. However the story is not so simple.

Misreading OECD data?

The OECD reports so often cited are easily misunderstood. In 2008 Julia Gillard claimed that under the Howard government, Australia’s public spending on tertiary education rose by “0%” over 1995-2005 while OECD spending rose by 49%. But Brendan O’Reilly, former director of Australia’s reporting of education statistics to the OECD, disputed this. He argued that spending had risen by 14% and that many commentators had misread the data:

most Australian commentators, when they see the term ‘public expenditure on educational institutions’ in OECD publications, tend to (wrongly) think it is the same as ‘public expenditure on education’. In reality, ‘public expenditure on tertiary education’ is comprised of two elements. The first element is […] mainly direct grants to tertiary institutions, which comprised 68% of total public spending […] The second element is ‘public transfers and payments to private entities’

The OECD table that compares our public spending at 0.7% of GDP with the OECD’s 1.1% represents O’Reilly’s first element.

In the same OECD report another table puts Australia’s total public spending on tertiary education (including student loans for fees or living costs) at 1.1% of GDP, against an OECD average of 1.4%. A third table on “tertiary type A” (university) programs puts total spending from public and private sources for Australia at 1.4%, in this case matching the OECD average.

Table 1 OECD tertiary spending comparisons Author

As Table 1 shows, comparison gets tricky. Countries such as Italy or Spain, with higher comparison rates than Australia’s for public spending on “tertiary institutions”, may not have higher rates for “tertiary education”.

Along with France and Germany, they may have lower rates than Australia’s for total public and private spending on “tertiary institutions” (which does not refer just to universities). And their total spending for university (“type A”) programs may also be lower.

What makes Australia exceptional

The “under-funding” story overplays the idea of an OECD policy “norm” while overlooking Australian “exceptionalism”.

First, most OECD nations “tax and spend” to finance their tertiary sectors. But Australia also “spends then taxes” in the form of HELP loans, with (most) debts repaid as a targeted levy on higher graduate incomes. While governments pay HELP funding directly to institutions, OECD table B2.3 classes this as “private” spending; even for loans that are never repaid.

Second, most countries finance their tertiary sectors with a mix of public spending and domestic student fees. But in Australia this sector is also an export industry: compared to most countries a much higher share of our enrolments are international students.

A Grattan Institute report shows the significance of this third stream of revenue, topping up domestic fee income by more than a third. OECD table B2.3 classes international fee income as “private” spending.

Student revenue Grattan Institute, Mapping Australian Higher Education 2014-15

Exceptional GDP growth

The third element of Australian exceptionalism is our “stronger for longer” GDP growth. Part of the “under-funding” story that “ranks” us low simply reflects the “under-performance” of GDP growth elsewhere. From 1992 to 2012 Australian GDP grew by 95% against the OECD’s 55%.

The global financial crisis highlighted how GDP affects OECD spending comparisons. Over 2008-2010 Estonia cut education spending by 10%. But as a percentage of GDP its comparison rate of public spending rose because its GDP fell by more than 10%.

Chart 1 GDP growth in Table 1 OECD countries 2001-2011 Author

Chart 1 shows GDP growth for different countries from 2001 to 2011. Table 2 shows what would happen if each agreed to spend 1% of its GDP on tertiary institutions every year from 2001 (as many did then), equal to 100 units of funding in 2001. By 2011 Australian spending would rise to 135 units, French spending to 113 units, Italian spending to 102 units, etc.

What happens if we combine Table 1 tertiary spending rates with each country’s GDP growth over time?

Table 2 Tertiary spending comparison rates, adjusted for GDP growth Author

As in Table 1, Australia still “under-performs” the OECD in “public spending on tertiary institutions” and each sample country; but not Italy. In “public spending on tertiary education” we still under-perform the OECD, the Netherlands and Germany; but now out-perform not just Italy, but France and Spain.

In “public and private spending on tertiary institutions” we now out-perform the OECD; and even the Netherlands. And in “public and private spending on type A programs” we now out-perform the OECD; the rest as before; but still not the Netherlands.

In university funding debates simple OECD based “rankings” look definitive. But they don’t prove as much as commentators claim.

Article by Geoff Sharrock, Program Director, LH Martin Institute, University of Melbourne

Unconventional Economist


  1. So a nice big drop in our GDP would boost our OECD ranking for education spend.

    GDP is amazing. So widely used in analysis and reporting. So utterly meaningless.

    • You’re right. Even the guy that invented the concept in the 30’s warned against its use a measure of national well being. Its very simplistic – i guess that is why politicians like it.

  2. The deep question is: what is the primary role of universities? The answer is of course: property management.

    Students are only there to provide the cashflow.
    Research is only there to get the universities high enough in the rankings to attract students.
    But the primary aim of universities is to hoover up as much land as they can and put pretty buildings on them. Student accommodation, admin complexes, maybe even the occasional research lab or lecture theatre.

    But unis are corporate structures now, with the same growth mantra admin overhead and corporate salary structures as the private sector.

    • Spot on. Really sad. So many degrees are utterly pointless. The one stat I got last week that there are 10,000 law grads every year and not even 10,000 people practicing law in Australia! For Universities to remain credible they need to focus on quality of student and not quantity. Most people at university should not be there

      • “Most people at university should not be there”

        That’s exactly I have been asserting. I also hear that students no longer bother attending lectures these days since everything is web based. You can bet that there is no quality control at all.

      • Most people are there to get a piece of paper with “Bachelor of” at the top of it, because we’re almost at the point where you need one to apply for a secretarial job.

        If the average punter had a good chance of a decent job without having a degree, there’d probably be less people trying to get them, and universities would more resemble their original role.

      • People are generally clueless as to what is going on around them. As for the ‘degree papers’, people cannot discern information from misinformation or select a real deal out of a pack of mixed bag. That is why they come to rely on labels.

        What I stated before still stands, of course, that there is only one truly important thing that one should learn from schools; how to educate oneself.

        Pity that there is no label for that achievement.

      • The lifting of caps on University student intakes by the Rudd Government is partly responsible for this.
        The outlook for some sections of the student population such as Engineering is dire.
        In 2014, the University of Melbourne undertook its “Business Improvement Plan” with the objective of shedding some 500 jobs from its general/professional staff (non academic). In order to remain employed at the University, the bulk of the staff involved had to apply for their own jobs.
        The main reason given for the Business Improvement Plan was lack of government funding.
        Funnily enough, the University seems to have deep pockets when it comes to acquiring more property and building new buildings.

  3. Universities, along with the whole tertiary sectory has been a victim of policy drift and intransigence as much as any funding shortfall. Merging TAFE with universities started the confusion in the 1980s, and a sucession of governments have seen fit to muddle about.

    Throw in poor management and a deep reluctance to change and move with the times by many academics and the confusion is deep. We actually have an excellent university system that needs a light touch and most of all a corp of administrators that pursue excellence without the self interest of the G8 types.

    Oh and 14 per cent superannuation for academics doesn’t help the balance sheets either.

    • Sorry University of Western Sydney, now polished with and rebranded as Western Sydney University, cheap at $30 million to remove ‘of’ and introduce a shield instead of a bird. Western Sydney University has one of the largest holdings of real estate in Western Sydney and is in ‘battle’ ground seats for both parties. Both Parties are very grand to the university come election time. This university has more money to splash around then it knows what to do with. The problem this money draws below par or extremely questionable contracts with certain suppliers would make the ICAC even blush.

  4. Certification mills for corporatist pumping out human widgets to plug and play….

    Skippy…. remember the out cry about Howard’s tweaking….

  5. If I had my time again, not sure I would have bothered with a University Degree, I’ve also been to TAFE and found my time there far less expensive and far more beneficial.

    • What is happening in the tertiary education sector is that competition for the available jobs has let to credentialism gone mad. In many cases, a degree is not enough. Students now need a Masters and PhD.
      Employers on the other hand are often shirking their role in providing ongoing training to their staff due to the cost.
      I have no doubt that the whole 457 Visa rort is also contributing to the difficulties that local University students will have in finding jobs after graduation.
      Finally, Australian Universities are spending up big on Marketing and Advertising to attract local and international students. I doubt that many of their graduates will go on to work and achieve the outcomes that the spin doctors are promising them.

      • I definitely agree that we have gone credential mad, the only thing University did for me was get my foot in the door, but it certainly didn’t give me nearly half the skills I need to be successful in the job I’m in now. 4 years is a long time for a degree. The company I work for insists on degree’s, although there are some exceptions I do think they are turning away of lot of talented people with this requirement.

        I would much prefer to hire someone who can prove to me they have done something practical than someone who thinks they know it all because they have a degree and know it all in theory. I see it all the time, these “smart graduates” who think once they get a qualification they know how everything works.

        Unfortunately they soon find they are hired to do a job that is well below their talent level like the rest of us.

        Like I say, if I had my time again I’d be a lot more selective in how I got my skills and qualifications. I am thinking of maybe getting more involved in mechanical engineers and vehicle engine management and tuning, this time around I would probably do part time tafe courses and spend much more time proving myself with an actual project (to act as a resume).