CASE PROGRAM 2004-8.1 The Higher Education Contribution Scheme Introduction In July 1987, when John Dawkins became Australia’s Federal Minister for Education, he faced a higher education sector under intense pressure to expand. There were large waiting lists for places at universities but the sector could not afford to enrol additional students. Pressure to expand was also coming from international comparisons which showed a substantial gap between the rate of output of tertiary graduates in Australia and that of other industrialised countries. Significant additional funding for universities from the Commonwealth was unlikely due to tightness in the federal budget. Universities were not permitted to charge students fees. In December Dawkins established a committee, chaired by former NSW Premier, Neville Wran, to find a solution to the higher education sector’s financial challenges. The funding gap in the higher education system The 1970s and 1980s were a time of rapid growth in enrolments in the Australian higher education sector.1 In 1975 there were 270,000 students enrolled. By 1987 the total had increased almost 50 per cent to 394,000.(See Exhibit 1) The sector’s 65 This case was written by Tim Watts, Australia and New Zealand School of Government, for Professor Glenn Withers, Australian National University, as a basis for class discussion rather than to illustrate either effective or ineffective handling of a managerial situation. The assistance of Meredith Edwards, David Phillips, Mike Gallagher, Bruce Chapman and Chris Robinson in preparing this case is gratefully acknowledged, but responsibility for the accuracy of the version of events presented here lies with the author. Cases are not necessarily intended as a complete account of the events described. While every reasonable effort has been made to ensure accuracy at the time of publication, subsequent developments may mean that certain details have since changed. This work is licensed under Creative Commons Attribution- NonCommercial-NoDerivatives 4.0 International Licence, except for logos, trademarks, photographs and other content marked as supplied by third parties. No licence is given in relation to third party material. Version 3-3-05. Distributed by the Case Program, The Australia and New Zealand School of Government, www.anzsog.edu.au. 1 Dawkins, JS Higher Education: A policy discussion paper, Canberra, AGPS, 1987. Page 5 1 universities and colleges were graduating about 78,000 students a year. Only eight years earlier this figure had been 66,000. University graduates as a proportion of the population had risen from eight per cent in 1981 to around 10 per cent in 1986.2 Despite the growth of the sector, Australia was not matching the performance of other OECD countries in delivering tertiary education.(See Exhibit 2) Between 10 and 11 per cent of Australians aged 18-24 were enrolled in higher education institutions in 1987, compared to 13 to 15 per cent of Americans and Canadians of this age.3 Comparative statistics on the proportion of the population qualified to first degree level suggested that Australia’s rate was equal to that of the UK and Germany but only about 60 per cent of that in Japan, the US and Canada.4 Australia’s universities were also not meeting the increasing demand for places. Official estimates put the total number of qualified applicants who were not accepted by a university in 1987 at around 20,000.5 The majority of these unsuccessful applicants were school leavers aged 17-19. Bruce Chapman, an economist from the Australian National University and a consultant to the Minister at the time, says these waiting lists were very sensitive politically. “The headlines were all about kids missing out on university and unfairly being denied an opportunity. Parents weren’t happy and it was becoming a major issue for Dawkins.” To explore the extent of the challenges confronting the higher education system, Dawkins’ office produced a discussion paper which was released in December 1987. The paper outlined the Government’s objective of bolstering national competitiveness in the increasingly knowledge-based global economy by increasing the number of university educated workers. Forecasts were made about the extent to which the higher education system would need to grow in the coming decade. Taking account of projected demographic and labour market changes, and the Government’s objective, the paper argued that the Australia would need to be producing 125,000 university graduates a year by 2001. Additional funding requirements to support this rate of graduate were projected to be 30 to 40 per cent above the amount allocated to higher education in the 1987 budget. (See Exhibit 3) Dawkins’ discussion paper also pointed to a backlog of capital expenditure on existing buildings and equipment not being undertaken. It also suggested that spending on new technologies to improve the quality of education in the sector was not occurring due to funds shortages.6 An estimate by Professor Peter Karmel, former vice-chancellor of the Australian National University, indicated that the additional capital investment needed to increase the sector’s enrolment capacity by the amount targeted in the discussion paper would be $1.4 billion.7 Commonwealth funding to the higher education sector was around $2.5 billion in 1987. Since 1975, Federal funding to the sector as a proportion of GDP had fallen 2 Dawkins, Page 10 3 Dawkins, Page 9 4 Dawkins, Page 10 5 Dawkins, Page 15 6 Dawkins, Page 79 7 Karmel, P. ‘Analysis of specific funding and resource allocation proposals’, in Harman, G & Meek, VL (eds), Australian Higher Education Reconstructed? DAHES, Sydney 1988. Page 55 2 from 1.4 per cent to 1 percent. The rise in total enrolments meant that funding per student had fallen by 23 per cent in that time.8 In 1986, before Dawkins had taken on the education portfolio, there had been a proposal to Cabinet from the Finance Minister, Peter Walsh to introduce fees at universities. This had been rejected on the grounds that it would discourage people from lower income households to undertake tertiary education. Walsh was able to get through Cabinet a $250 per year upfront fee on students called the Higher Education Administration Charge (HEAC). It was set at a level roughly equivalent to the administrative costs per student borne by universities. HEAC only generated $95 million in revenue, a minor amount in the context of the total annual budget of the sector. This would only increase if student numbers grew. Another shortcoming was that institutions were allocated just 10 per cent of the revenue generated by HEAC. After the first year of HEAC, enrolment data revealed that the number of female students and part-time students had dropped. This outcome confirmed the views of those such as Susan Ryan, the former Minister for Education, who had argued against the introduction of upfront charges on grounds that poorer members of the community would be discouraged from entering university. The Wran Committee Quickly following on from the release of his discussion paper, Dawkins established a committee to examine new funding options. He issued the following terms of reference: “1. The Government is committed to expanding the capacity and effectiveness of the higher education sector and to improving access to higher education for groups that are currently under-represented. This goal has significant funding implications, as outlined in the Policy Discussion Paper on higher education. Given current and likely future budgetary circumstances, the Government believes that it is necessary to consider sources of funding involving the direct beneficiaries of higher education. 2. The Committee should develop options and make recommendations for possible schemes of funding which could involve contributions from higher education students, graduates, their parents and employers. In developing options, the Committee should have regard to the social and educational consequences of the schemes under examination.”9 Dawkins set the Committee a tight timeframe. It was to report back in only four months, by March 1988. Former NSW Premier, Neville Wran, was chosen as chair of the Committee. The other members were Mike Gallagher, a senior public servant who had worked previously on higher education funding issues; Professor Bob Gregory, a respected economist from the Australian National University; and Meredith Edwards, an executive from the Department of Social Security with a strong social science 8 Edwards, M et al Social Policy, Public Policy, , Allen & Unwin, Sydney 2001. Page 100 9 Dawkins, page 87 3 academic background and whose experience in the welfare system meant she was well placed to assess the impact of any changes on lower income students. Edwards says Dawkins was mindful of the opposition to student fees within his own party when he selected the members of the Committee. “The Labor party had abolished university fees under Gough Whitlam in 1974. It was one the most remembered achievements of the party and it was still explicit in their platform. The ideological commitment to free university education was very strong.” Gallagher says Dawkins made sure the committee contained people who would have credibility with those in the party who were most strongly opposed to charges on students. A small group of public servants from the Department of Education was seconded to serve as a secretariat to the Committee. The Committee met once every couple of weeks, with the secretariat completing research and drafting reports during the intervening periods. Several members of the Minister’s staff, including consultant, Bruce Chapman, and private secretary, David Phillips, regularly sat in on meetings. The beneficiaries of the higher education system In the first weeks of its deliberations, the Wran Committee focused on understanding the major beneficiaries of higher education and determining how to fairly apportion funding responsibility. Three major categories of beneficiary were identified: the students, society at large and the business sector which employed graduates.