The Productivity Commission gives universities both a tick and a tickle

The Productivity Commission gives universities both an endorsement and a provocative challenge.

On one level universities can rejoice. Their sector, higher education, has been given the once-over by the cold, hard eye of the Productivity Commission and the conclusion is that university education is good and should grow.

The commission urges that Australia should return to the demand-driven system higher education funding system that would remove the cap on government enrolment subsidies and allow universities to enrol every qualified student who applies to do a bachelor degree.

If the commission’s advice is taken by the Albanese government, and that’s a very big if, we would return to the system that effectively ran from 2010 to 2017 in which university enrolments expanded dramatically.

It bases this recommendation on its finding that the extra students who enrolled in higher education under the demand-driven system did gain significant benefits. Even though the additional students weren’t as well prepared for university as those who would have enrolled anyway, they still did better than the alternatives of vocational education, or not getting any tertiary education at all.

The report also looks forward into the next few decades in which demand for high level skills will increase sharply, and into the next decade when the number of kids leaving school will rise. The number of 19 year olds is expected to rise by 15 per cent during the 2020s, which the current, capped higher education funding system is not ready to handle.

“This growth means governments will either have to accept a smaller proportion of young people attending tertiary education, spend significantly more, or alter funding structures to allow more places to be delivered for the same fiscal cost,” the commission says.

And this brings us to the other main part of the commission’s recipe for higher education which is harder to swallow.

Its solution, which avoids any increase in public spending (that is highly unlikely to be available in the current budget environment), is to make students pay more. And instead of the highly arbitrary, and widely varying fee levels currently set for different courses, the fees would be based on the likely earning power of the student once they graduate, “with higher student contributions for high-earning degrees such as medicine,” says the commission.

But the report is not just about expanding university enrolments and revenues and making the institutions larger. It also zeros in on areas where it believes universities should be exposed to more scrutiny and competitive forces.

It points out that a return to the demand-driven system, in which government funding follows the student, will lead to more market pressure on universities to perform well in their teaching.

“Universities have weak financial incentives to raise their teaching quality and tend to favour research over teaching,” the commission notes. It is worth considering ways to reward universities which improve their teaching quality, the report says.

Overall, universities have said little about the commission’s report. While it’s a thorough endorsement of universities on one level, it also presents them with provocative and uncomfortable challenges. It should be given close attention by the panel currently working on recommendations for tertiary education reform to hand to Education Minister Jason Clare.