Stephen Smith (Perth, Australian Labor Party, Shadow Minister for Education and Training) Share this | Link to this | Hansard source

The Higher Education Endowment Fund Bill 2007 and the Higher Education Endowment Fund (Consequential Amendments) Bill 2007 give effect to the government’s announcement in the 2007 budget of the establishment of a perpetual endowment fund for higher education purposes. The intent of the fund is to generate earnings for capital expenditure and research facilities in higher education institutions. The Higher Education Endowment Fund constitutes a $6 billion investment, with $5 billion announced at the time of the federal budget and a further $1 billion announced on 20 August. The Higher Education Endowment Fund Bill establishes the fund and the Higher Education Endowment Fund (Consequential Amendments) Bill 2007 amends the Future Fund Act 2006 and the Income Tax Assessment Act 1997 to effect the implementation of the Higher Education Endowment Fund. The consequential amendments bill also provides that investments made by the Future Fund Board of Guardians will be determined by the Future Fund Board of Guardians and not by ministerial direction. This bill also specifies that the responsible ministers—the Minister for Finance and Administration and the Treasurer—cannot direct the Future Fund Board of Guardians to use the assets of the Future Fund to invest in a particular asset.

Labor supports these bills, but let the House and the Australian people understand very clearly the only reason these bills are here today is that Kevin Rudd and Labor have made education a front-and-centre issue for all of this year. The government have only acted because we are in an election year. The fund is welcome but it comes after years of sustained neglect and underinvestment by the Howard government in our education sector in general and our higher education sector in particular.

The recent Australia Fair 2007 report by the Australian Council of Social Services found that the Howard government’s record on education represented a significant lost opportunity to improve prosperity given that, as a proportion of GDP, Australia spends the least on education of the six English-speaking OECD countries, apart from Ireland, putting us behind Canada, the United Kingdom, New Zealand and the United States. Of the six English-speaking OECD countries, only the United Kingdom has lower rates than Australia of people aged between 25 and 34 and between 45 and 54 with an upper secondary education, and only 1.5 per cent of public investment in education in Australia goes to pre-primary education, compared to an OECD average of 7.2 per cent, with only Ireland investing less.

This report follows on from the most recent figures contained in the OECD Education at a Glance 2006 report, which shows that Australia sits fourth lowest behind Mexico, South Korea and Germany in the proportion of public expenditure on primary, secondary and postsecondary non-tertiary education at 83.7 per cent, down from 85.5 per cent in 1995 and well below the OECD average of 92.7 per cent. Australia spends just 0.1 per cent of GDP on pre-primary education, compared to the OECD average of 0.5 per cent, with more than one-third of Australian four-year-olds not receiving any pre-primary education at all. This is frankly not a performance we can be proud of or rely upon for the future. Despite this, the Howard government tries to gloss over both its record and our current standing internationally.

Most recently the Treasurer has been making excuses for the government’s record. On 30 August the Treasurer issued a press release in response to the ACOSS Australia Fair 2007 report. Instead of confronting this record and admitting that the government has failed the Australian people in its investment in education, the Treasurer chose to make excuses and selectively quoted statistics combining both public and private expenditure on education to attempt to mask a lack of public investment by the Howard government. Private investment is a good and necessary thing in education but it cannot and should not be an excuse for the Howard government’s failure to discharge the Commonwealth’s central responsibility to provide adequately for the education and training of our nation’s people. Unfortunately, after more than 11 long years in office, the Howard government still does not get this.

Over the past 11 long years, the Howard government has presided over the deterioration of our higher education and university sector. The simple fact remains that this government has underfunded our university sector. It has not invested enough in higher education. In its first federal budget in 1996, the Howard government cut university operating grants by a cumulative six per cent over the forward estimates from 1997 to 2000. According to the Group of Eight universities, this resulted in a significant $850 million in cuts to the sector. This had significant flow-on effects for subsequent years as universities dealt with the adverse impact of these cuts.

Government funding cuts to university operating grants since 1996 have put greater financial pressure on university finances, with flow-on effects to the way universities operate. The cold reality is that the Commonwealth has reduced its contribution as a proportion of total revenue. The Commonwealth recurrent funding to universities has fallen by a third from 0.9 per cent of GDP in 1996 to just 0.6 per cent today. According to the most recent OECD figures, Australia has the fourth lowest proportion of public expenditure on tertiary education at 48 per cent, down from 64.8 per cent in 1995 and well below the OECD average of 76.4 per cent. Of all the OECD economies, only the United States, Japan and South Korea make less public investment in tertiary education as a proportion of total investment than Australia. This is evidenced by the fact that Commonwealth grants to universities have decreased from 57 per cent of university revenue in 1996 to 41 per cent in 2004.

Irrespective of this, the Howard government and the Minister for Education, Science and Training state as their defence that Commonwealth expenditure has increased in real terms in the university sector since 1996. The government maintains its silence about the fact that university finance has been substantially outpaced by the total number of students at university. While the government claims that tertiary spending has increased in real terms by 26 per cent since 1996, enrolments have increased by more than double that since 1996. As a consequence, the average amount of Commonwealth funding per student in real terms has declined by nearly $1,500, while student HECS contributions have increased by nearly $2,000 and fees and charges have increased by over $3,000.

If we look at the statistics released in March this year by the Australian Bureau of Statistics, we will see that, while the Commonwealth has increased funding for universities by approximately six per cent since 2001, this has fallen far short of the 12 per cent increase in the number of full-time students since 2001. Even by the government’s own figures, there has been a reduction in the total Commonwealth allocation per student in the period the government has been in office. This has seen a deterioration in the staff-to-student ratio over this time. Universities Australia has shown through its analysis that since 1995 staff-to-student ratios have increased from 14.6 per cent to 20.4 per cent today. Put simply, this means that, as a direct result of a lack of investment in universities by the Howard government, students today receive less time one-on-one with their lecturers and tutors than their counterparts over a decade ago.

We have also seen over this period a substantial shift from public investment in our universities to private investment. According to the most recent OECD figures, Australia has the fourth highest proportion of private expenditure on tertiary education. In 1995, private sources of income made up 35 per cent of university financing. In 2004, that had jumped to 52 per cent—more than double the OECD average of 23.6 per cent. Individual student contributions from fees and charges in the same time have nearly doubled, increasing from 13 per cent in 1996 to 24 per cent in 2004. Australia’s tertiary education system now relies more on private financing than all other OECD countries except for the United States, Japan and South Korea. HECS has gone up on average 100 per cent over the last 10 years. Domestic students now face the prospect of large, long-lasting debt burden after they complete their studies. Since 1996-97, the debt burden for university students has nearly tripled from $4.5 billion to nearly $13 billion in 2005-06.

Universities have also been forced to turn to domestic full fee paying students to help bridge the funding shortfall from the Commonwealth over the past 11 years. According to new Department of Education, Science and Training figures, the number of domestic undergraduate full fee paying students has increased by around 70 per cent in the year to 2006 and by nearly 300 per cent since 2003. That has seen the number of domestic full fee paying undergraduate students increase from fewer than 8,000 in 2003 to more than 30,000 today. At the same time, higher education institutions have taken on a great deal more international full fee paying students. This has seen a rise from fewer than 52,000 in 1995 to nearly 240,000 in 2005—a 360 per cent increase. In percentage terms, international fee income today makes up 15 per cent of total university revenue—an all-time high.

As public investment in tertiary education has fallen, universities have had little option but to increase their reliance on HECS fee increases, fees from international students and fees from full fee paying domestic undergraduate students. The situation our universities face is quite simple: Commonwealth contributions down, fees up, overseas student fees up and HECS up. The underfunding of our universities by the Howard government is clear.

Our universities need to have modern and adequate infrastructure. According to the government’s own department, our universities have deferred approximately $1.5 billion worth of infrastructure investment. The Group of Eight universities estimate that the total deferred maintenance liabilities across Go8 universities in 2006 alone was over $1.5 billion. There is a simple reason universities have deferred maintenance costs. Squeezed by the Howard government’s reduction in university funding, universities have had to delay or defer spending on maintenance or the upgrading of new infrastructure.

In contrast, key competitor nations like China are now investing heavily in new universities and research infrastructure. In 2004, China was ranked fourth in expenditure on research and development, behind only the United States, the European Union and Japan. On the basis of growth rates from 2000-04, China was expected to rank second by the end of last year. In addition to this, China today is investing significantly in its research university capacity, having already commenced work on constructing from scratch around 100 research universities modelled on the University of California, Berkeley. Reflecting this commitment, in China today there are about 15 million tertiary students. By 2010, it is estimated there will be about 25 million tertiary students.

This underscores the gravity of the international competition we face as a nation when it comes to our universities. No longer are they competing against each other for domestic students and domestic research. Today, like so many aspects of our economy, they are in an international competition for talent, skills and research. The Group of Eight universities summed it up neatly in their submission to the Senate Employment, Workplace Relations and Education Committee inquiry by stating:

In 2006 China became the world’s second highest investor in R&D, spending some $170 billion, compared with Japan’s $160 billion. The US leads with $410 billion while R&D spending by the European Unions totals $290 billion. So, while the big commitment of six billion dollars is significant and welcome, the $300 to $400 million it is expected to produce annually in the initial years, must be viewed in the context of the recurrent and backlog expenses Australia’s universities face due to past funding cuts …

This is the confronting reality we must deal with.

As a nation we can no longer continue to rely on the good fortune of our minerals and petroleum resources boom to China to maintain our ongoing prosperity. To ensure our future prosperity, we must lift our workplace and national productivity. All the evidence shows that the most effective way to do this is to increase our investment in the education, skills and training of our people and our workforce. If Australia is to turn its productivity performance around and enhance the number of people participating in its workforce, we must increase investment in education at all levels—early childhood education, primary schools, secondary schools, vocational education and training, universities, research, on-the-job training and ongoing professional development. Put simply, Australia needs a revolution in the quantity of our investment in human capital and a revolution in the quality of the outcomes that the education system delivers.

The provisions of the Higher Education Endowment Fund Bill have been modelled on the provisions of the Future Fund Act 2006. The bill provides the Future Fund Board of Guardians with statutory powers to manage the investments of the Higher Education Endowment Fund. The Higher Education Endowment Fund Bill also provides that, as with the Future Fund, the Treasurer and the Minister for Finance and Administration are the responsible ministers. In that capacity, they will issue directions to the board about the performance of investing functions. The board is therefore accountable to the Treasurer and the finance minister for meeting its obligations to manage the Higher Education Endowment Fund in accordance with the requirements of the act and directions. The responsible ministers will make the determination to credit government contributions, initially of $6 billion, to the Higher Education Endowment Fund and any subsequent government contributions to the fund.

The responsible ministers are also responsible for setting rules to determine the maximum amount available for payments from the fund. The fund advisory board will be established to provide advice to the education minister on actual grants. Because of the different nature and intent of the Higher Education Endowment Fund compared to the Future Fund, the education minister, not the responsible ministers, is responsible for authorising grants of financial assistance to eligible higher education institutions and for appointments to the Higher Education Endowment Fund Advisory Board.

Clauses 40(2) and 40(3) provide that the minister for education determines who sits on the fund’s advisory board, while clause 40(4) sets out how the board will operate. Clause 41 determines how the board will undertake its functions. Clause 45 provides that the minister for education authorises grants of financial assistance to eligible higher education institutions in relation to capital expenditure and research facilities. Clause 50 outlines the terms and conditions of funding, including that the terms and conditions on which financial assistance is provided to a higher education provider must be set out in written agreement between the minister for education on behalf of the Commonwealth and the eligible higher education institution.

The Higher Education Endowment Fund (Consequential Amendments) Bill contains a variety of amendments to the Future Fund Act 2006. Almost all of these are technical amendments designed to ensure that the Higher Education Endowment Fund Bill and the Future Fund Act are compatible. They are intended to ensure there is no inconsistency between the umbrella Future Fund Act, which covers the mechanics of fund operation for both the Future Fund and the Higher Education Endowment Fund, and the Higher Education Endowment Fund Bill, which deals with matters specific to the Higher Education Endowment Fund. Two specific amendments are intended to prevent the government of the day from using the Future Fund to help finance specific projects or initiatives. Proposed new section 18A precludes the responsible ministers from directing the fund to invest in any particular assets or business. Proposed new subsection 8(1)(1A) of schedule 1, which relates specifically to financial assets that have been transferred into the fund, such as Telstra shares, precludes the responsible ministers from directing the board regarding the investment of any income from the assets, any return on capital accruing from the assets or the assets themselves.

Labor believes there is a role for the Commonwealth in helping to fund infrastructure in our universities, just as there is a Commonwealth role in infrastructure more generally. This not just applies to general infrastructure or infrastructure like broadband but importantly extends to specialist research infrastructure for which the Higher Education Endowment Fund is able to be applied.

The legislation, though, is not without concern. The Senate inquiry into the legislation demonstrated this. Submissions received by the inquiry broadly welcomed the measure; however, some concern was expressed over aspects of the legislation. It is worth briefly touching on three areas of concern raised by various submissions.

A central concern expressed by a number of submissions relates to the transparency associated with the power vested in the minister to make determinations as to where Higher Education Endowment Fund funding is to be directed. In particular, concern was expressed that the minister has too much authority to make such determinations. Proposed section 45 provides that the minister for education authorises grants of financial assistance to eligible higher education institutions in relation to capital expenditure. Proposed section 50 outlines the terms and conditions for funding, including that the terms and conditions on which financial assistance is provided through a higher education provider be set out in written agreement between the minister for education, on behalf of the Commonwealth, and the eligible higher education institution. As a submission from the Federation of Australian Scientific and Technological Societies, FASTS, expressed:

The intent of s40 of the Bill is to give the Minister control of all stages of the grant process including selecting the Advisory Board (s40(2)), terminating members of the Board (s40(3)), giving directions (s40(4)) and authorising grants to eligible higher education institutions (s45).

A number of submissions identified the potential for funding allocations to be based on political factors rather than on the merits of individual proposals or through, as the Group of Eight identified in its submission:

… any strategic consideration of the sector’s infrastructure needs.

FASTS was more blunt, expressing that in its current form the fund is in effect:

… a significant slush fund for Ministerial pork-barrelling.

Equally, there is no requirement that the advisory board’s recommendations or any variations to those recommendations be made public. As FASTS argued:

FASTS believes this is not a good governance model and recommends the legislation be amended to ensure the Minister makes public both Advisory Board recommendations and significant Ministerial variances from this advice.

A second concern relates to the disbursement of funds each year. Universities Australia expressed concern that the legislation does not set out in any detail the rules by which funding is to be distributed under the Higher Education Endowment Fund and that these details are being developed by the Department of Education, Science and Training in the form of guidelines and administrative information. For instance, it remains unclear how the income stream, which on the government’s estimates may well approach $400 million per year, will be distributed. Based on return projections provided at the time of the budget, the Higher Education Endowment Fund would only deliver each university on average an extra $9.5 million each year. This will not make up for more than 11 years of complacency towards and neglect of our universities’ infrastructure by the Howard government.

Third, submissions expressed concern that the fund will continue to be additional funding and not a substitute for existing programs that provide funds for capital works and research infrastructure in universities. The Group of Eight submission noted that it is essential that the fund never be seen as a substitute for important schemes which serve specific purposes, such as the National Collaborative Research Infrastructure Strategy, the Capital Development Pool, funding provided through the Australian Research Council or enabling and equipment grants under the National Health and Medical Research Council.

Labor believes that income from the Higher Education Endowment Fund should be available to those higher education infrastructure projects that genuinely advance our national interest and work off national and international competitive strengths of the respective universities and should not be used to provide a short-term political dividend to the government of the day. These sentiments are expressed in the following second reading amendment, which I look forward to my colleague, the member for Rankin, seconding. I move:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading the House:

(1)

welcomes the fact that the Higher Education Endowment Fund, like the Future Fund, is for investment in Australia’s long-term national interests;

(2)

notes that:

(a)

by the Government’s own analysis there exists a significant backlog of deferred infrastructure maintenance, estimated at $1.5 billion for the university sector;

(b)

the Group of Eight Universities estimated that total deferred maintenance liabilities were $1.53 billion in 2006 across Go8 universities alone;

(c)

the principal reason behind this backlog is the fact that since it came to power more than 11 years ago the Government has undermined the higher education sector by cutting university operating grants, starting with its 1996 Federal Budget;

(d)

as a proportion of total revenue, Commonwealth grants to universities have decreased from 57% of their revenue in 1996 to 41% in 2004, while university revenue derived from fees and charges has increased from 13% in 1996 to 24% in 2004; and

(3)

condemns the Government for the adverse impact these factors have had on Australia’s universities, including that:

(a)

since 1995 student-staff ratios have increased from 14.6 to 20.4 today, with adverse implications for the quality of teaching and learning;

(b)

Australia’s education system now relies more on private financing than all other OECD countries except for the United States, Japan and South Korea;

(c)

university revenue derived from fees and charges has increased from 13% in 1996 to 25% in 2004, with the result that more than half of the cost of tertiary education today is met from private sources – with dependence on private sources increasing to 52% in 2004 from 35% in 1995;

(d)

the average amount of Commonwealth funding per student in real terms has declined by nearly $1,500, while student HECS contributions have increased by nearly $2,000, and fees and charges have increased by over $3,000; and

(e)

the deferment of essential expenditure on the maintenance of University buildings and facilities will have long term consequences for the quality of essential infrastructure; and

(4)

notes widespread concerns that:

(a)

over time, the HEEF could be used to replace existing capital and infrastructure programs in higher education, notably the Capital Development Pool, the Institutional Grants Scheme, the Research Infrastructure (Block Grants) Scheme and the National Collaborative Research Infrastructure Scheme; and

(b)

the Governments actions in this package highlight the inadequacy of its approach to national infrastructure needs, whether in the education sector or in services which impact on the sector, such as a national broadband network”.

I commend the bill and the second reading amendment to the House.

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

Is the amendment seconded?

Craig Emerson (Rankin, Australian Labor Party, Shadow Minister for Service Economy, Small Business and Independent Contractors) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Wilson Tuckey (O'Connor, Liberal Party) Share this | Link to this | Hansard source

The Higher Education Endowment Fund Bill 2007 is a bill of great importance, as it sets a precedent for the university sector. It is good policy. The cognate bill, the Higher Education Endowment Fund (Consequential Amendments) Bill 2007, will protect the $5 billion that the government has provided in the budget for an endowment fund that will guarantee resources to the university sector for capital works and research in the future. The Higher Education Endowment Fund is consistent with the government’s Future Fund, which has a target of some $140 billion to meet the superannuation responsibilities of the taxpayer—those who continue to be in, or were in, unfunded superannuation arrangements that typically, over decades, were funded from the general budget.

The changed demographics that are predicted for this nation would make it totally unsustainable to pay those amounts of money to the Australian Defence Force, the Australian Federal Police and others who will be eligible for superannuation in future years. It is all right for people to say that a future government has a responsibility and should meet it and that future governments will take account of the capacity of the taxpayer base and other matters when determining their expenditure. Without the superannuation based Future Fund, in particular, persons in employment today might worry about their otherwise determined superannuation entitlements being delivered. It would not be the first time that a government has bailed out on the commitments of past governments.

There have been statements made in this place that are an absolute threat to these endowment funds. The opposition has made it clear that, in the case of the Future Fund, to quote the member for Hotham: ‘This is only for the purpose of funding the superannuation of public servants. Therefore, if we think we have better ways of spending it, we will.’ The consequential amendments bill is designed, as was the additional Future Fund legislation, to ensure that governments cannot undertake that course nor direct the guardians of the money to make investments or divert moneys for other than proper purposes. The Higher Education Endowment Fund is therefore a particularly valuable contribution to the university sector. To the best of my knowledge, it is universally accepted and applauded.

I will refer in brief to the member for Perth’s remarks. He started to quote statistics about undergraduate places and many other factors of that nature. I will put on record that, shortly after the introduction of Medicare and bulk-billing, when it became so profitable for certain medical practitioners that one managed to buy a football team and when there were people playing grand pianos in the reception areas of general practices, the Hawke government panicked that they had a tiger by the tail. Their response was to say, ‘We’ve got to reduce the number of doctors. We obviously have too many, as they are getting out there and adding significantly to the costs to government.’ It was quite interesting, because the result of that concern was to reduce by 4,000 the number of undergraduate places that were available to students throughout Australia. As we all know, it takes at least 10 years to get such a student from the starting post to being a self-reliant general practitioner. When one works out the timing, one might wonder why Australia is now desperately short of Australian-born, -bred and -educated general practitioners. Of course, this government has not only increased those places dramatically; it has opened new medical schools in, I think, Cairns and other places.

We well remember the decision of the Whitlam government to create free university education and the decision of the Hawke government that that was unsustainable, notwithstanding its retention by the Fraser government. We had a situation where governments could not afford that process. Then there was the issue of natural justice, in that people asked the question: ‘If my kid goes to TAFE and pays up-front for an education, why should someone who could anticipate earning in today’s monetary terms a $40,000 or $50,000 starting salary not make some financial contribution to their education?’ The Higher Education Contribution Scheme threshold at which people start to repay that money has been extended to about $39,000, if I recollect the sum. The reality is that those people do not pay up before that time, before they have earned that money.

Debate interrupted.