Senate told $2.8bn higher education savings may push another 5 universities into deficit

Senior managers tell HES universities will have to raise debt in order to finance research facilities.

The loss of the EIF would “critically undermine the next decade of research”, says Vicki Thomson, chief executive of the Group of Eight. Picture: istock

Ten universities may tip into deficit if the government’s $2.8 billion higher education savings package goes through, the peak sector body has warned.

“There are five or six universities in the country that are teetering on deficit, we would contend that if the cuts on the table go through we’ll get to nine or 10 universities (in deficit),” said Catriona Jackson, deputy chief exec­utive of Universities Australia.

She was giving evidence at a Senate inquiry into legislation to abolish the $3.8 billion Education Investment Fund and divert its funds to the National Disability Insurance Scheme.

Liberal senator Jane Hume, the committee chairwoman, suggested during Friday’s hearing that universities were enjoying record funding and should be able to finance EIF-style capital works such as teaching and research facilities from their own surpluses.

Senator Hume said funding for higher education and research this year was a record $17bn, rising 23 per cent to $21bn by 2020-21.

UA says operating results for universities have declined, with the margin across the sector falling by 20 per cent in real terms between 2008 and 2015.

UA deputy chairman Andrew Vann, vice-chancellor of Charles Sturt University, said it was true overall funding for the sector had increased but so had the number of students.

His university had just done its budgets, assuming that the government’s higher education cuts would become law.

“We expect to run a deficit in 2018 and we will be lucky to come to something like a balanced budget the following two years,” he said.

“We have had economies of scale as the sector grew — and we needed them — but that growth in the domestic market seems to have largely gone now, so those economies of scale will not be available to universities in the ­future.”

The sector says political fixation on its cash surpluses is misleading because accounting rules include project-specific research grants that must be spent over a number of years as well as philanthropic gifts usually tied to specific purposes.

Ms Jackson’s evidence to the committee on the question of deficits was based on these “accounting” surpluses which tend to overstate the financial health of universities. After the hearing, she told the HES that if one-off capital grants are excluded, eight universities were in deficit in 2015.

“A further nine universities had (adjusted) operating results below 5 per cent, three of which were below 3 per cent.

“In real 2015 dollars, the total surplus in 2010 was $2.bn, nearly half a billion more than in 2015.”

Senior managers have told the HES that more universities will have to raise debt in order to finance transformative research facilities of the kind once funded by the EIF.

Senator Hume suggested the EIF was a “sacred cow” and asked whether it made a more significant contribution to economic and social wellbeing than a fully funded NDIS.

Professor Vann replied that EIF’s $3.8bn represented a temporary “sugar hit” for the NDIS, whereas the drawing down of that money would have long-term consequences for higher education.

Vicki Thomson, chief executive of the Group of Eight, said the higher education sector was “low-hanging fruit” for government in search of cuts. “We’ve had $3.9bn that’s been cut since 2011, and we’ve got $2.8bn (in cuts) as part of the current package — these are the most significant cuts in 20 years,” she said.

An underlying problem was the failure to fully fund research.

“The current funding model is broken, because we rely so heavily on teaching income and international student fee income to cross-subsidise research — and that is not in our view a sustainable funding model,” she said.

“So the increases, Senator Hume, that you refer to, which come from teaching, will be used to cross-subsidise into research.”

Ms Thomson said loss of the EIF would “critically undermine the next decade of research”, causing Australia to fall behind in global university rankings, thereby making our sector less ­attractive to international students.

“It will impact on our international student operation — a $22bn industry that creates jobs.”