Paul Fletcher (Bradfield, Liberal Party, Parliamentary Secretary to the Minister for Communications) Share this | Hansard source

I am very pleased to rise to speak on the Higher Education and Research Reform Amendment Bill 2014—a bill which will amend the Higher Education Support Act to implement the measures contained in the 2014-15 budget dealing with higher education. This is an important bill which will expand opportunities for students and ensure that Australia has a world-class tertiary education system. In the time available to me this afternoon, I want to make three arguments: firstly, that universities are critical to our national economic performance; secondly, that Australian universities are seriously constrained in the way that they operate today; and, thirdly, that the government's changes will free up universities to be more competitive and flexible and, hence, to be higher performing.

Let me turn firstly to the point that universities are critical to our national economic performance. I want to touch on some indicators of the economic importance and significance of universities. There is evidence that improved investment in education delivers economic returns. For example, 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. Secondly, universities play a very important role as an employer. According to a policy note released by the Group of Eight universities, in 2012 there were 112,699 full-time equivalent employees in the public higher education system, and that system generated around $25 billion of revenue.

Another important argument 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-nineties which consistently found that the rate of return on investment in research and development is high. Equally importantly, of course, is the fact that innovation from research and development—in which universities play a key role—is a key 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 would like 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. Since the 1930s, roughly 60 per cent of all Nobel prizes have gone to Americans, and 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, to name just a few. Dr Cole puts it this way:

… 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 his book regarding the importance of higher education in contributing to national economic competitiveness.

Indeed, my views in this area were confirmed or strengthened when I had the good fortune to visit Silicon Valley at the start of the year. Amongst other things, I attended a presentation given by Coursera—the well-known although relatively new company established by two Stanford University computer science professors. Coursera operates MOOCs, Massive Online Open Courses. Coursera's courses are now allowing 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 these universities involved, but they mean also that every university needs to think very carefully about its competitiveness, including its competitiveness internationally, what its position in the market is and how it sustains that position.

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 United States system. According to the 2013 document issued by the OECD, Indicators: Education at a Glance, US expenditure on tertiary education as a percentage of GDP 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 in the modern knowledge economy.

The other trend which clearly emerges is that there is a substantial level of private funding at the tertiary level across most OECD countries and that over time that is growing. That is not something that is surprise, because the capacity of all governments to continue to fund without limit their tertiary education system when they face many other demands on the public purse is not endless. So governments around the world are facing many of the same issues as the Australian government.

That bring me to my second point, which is that 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—a half-hearted attempt at deregulation. The consequences of this are significant. Today, universities have little scope to differentiate or, should they be able to, 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 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, the vice-chancellor of the Australian National University and chair of the Group of Eight universities, had this to say recently 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 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, that 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 Gough 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, and we should be concerned that many top-ranking Australian universities are slipping in international ranks year-on-year.

I quoted earlier the Shanghai Jiao Tong University index that shows there are four Australian universities in the top 100. Again, I draw the contrast between that and the number I cited earlier of 40 American universities in the top 50 in 2009.

The changes contained in the package before the House this afternoon will improve the flexibility and competitiveness of our universities and lead to a higher-performing university system. Deregulation is the 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. Ian Young, ANU Vice-Chancellor said, 'Deregulation will enable universities to differentiate, to play to their strengths.'

The measures contained in the legislation before the House this afternoon 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 from the other side of the House, the package contains a number of very important equity and fairness measures. 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. Additionally, the Commonwealth will require new Commonwealth scholarship schemes to support access to higher education. Universities will be required to spend $1 in $5 of additional revenue on scholarships for disadvantaged students.

Vice-Chancellor of the Australian Catholic University, Greg Craven, in an article in The Australian addressed some of the over stated and overblown claims that have been made about the equity impacts of the measures in the bill before the House today. He said:

… Pyne has retained and extended Labor's great initiative: open university entry for every qualified person, under the de-mand-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.

Third, 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 important recognition of the equity aspects of the package before the House this afternoon and highlights the point that some of the criticisms that have been made of the equity implications of the package are very much overblown.

A key priority for a coalition government always is to consider the impact of any set of measures on regional Australia and, in this case, on regional universities. An important aspect of this package is that the government will also continue to support regional higher education directly through $274 million in regional loading over the next four years in recognition of the higher costs of regional campuses.

There has also been a lot of overblown speculation about the impact on fees if universities are free to set prices as they judge appropriate. Much of that overblown commentary 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 this afternoon is a very important package because what it does is continue a reform direction in education that has been under way for some time. It 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. As we become more and more a knowledge economy, that will only increase.

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