The hoarded tax Labor won’t touch

The $5 billion Higher Education Endowment Fund announced in last night’s Budget has given the government what it has long lacked in higher education – an iconic policy. University leaders have been fulsome in their praise, and the media coverage has been overwhelmingly positive.

It fits into a pattern I noted last month of some of the most attention-grabbing things in higher education happening almost by accident. I can’t now find his analysis on Crikey’s hard-to-navigate site, but I think Sinclair Davidson had it right this morning – the Higher Education Endowment Fund is less about a government change of heart on higher education than their desire to stash the proceeds of excessive taxation somewhere Labor won’t be able to get it without significant risk. Like an evacuating army, the Coalition is setting political booby traps in the edifices it might leave behind.

With Stephen Kirchner, I would prefer tax reform to Commonwealth revenue hoarding. And while I do think universities could do with some capital investment, this is not the best way of going about it. The Fund puts control in the hands of the Commonwealth to pick and choose which capital projects to support, something that they haven’t done on a large scale for many years. I’m sure anyone who has attended university has seen the exceptionally ugly buildings built in the days when such projects were organised by government officials who did not have to look at them. If we had to have a higher education capital give-away, it would be better to put the money into existing university endowment funds so they could use it without reference to the Minister.

Better still, let universities fund their building projects from their normal income stream or borrowings against it – which is effectively what’s been happening, based on full-fee student revenue, since real cuts to Commonwealth-supported student payments meant that no major capital projects could be financed based on government funding.

Tax cuts are indirectly a way to alter the economics of capital projects at universities, if they have control over their fees. The price worth paying for higher education depends partly on the future economic return to be gained, and that in turn is significantly affected by tax rates. I can’t remember the exact amount of time, but I calculated last year that the tax cuts of recent Budgets would for male graduates working full-time fairly quickly wipe-out the added student contribution amounts charged as a result of the Nelson reforms. So tax cuts make fees more ‘affordable’, and higher fees make it possible for universities to finance major construction projects.

Alas, though, such market-based solutions still seem a long way from the political agenda.

7 thoughts on “The hoarded tax Labor won’t touch

  1. I don’t think Labor intends to touch it. First, I’d take Swan at his word on this one – though he didn’t rule out changing the objects, as I recall. It could easily be tweaked to provide recurrent funding as well as capital funding without massively distorting the intent.

    I’d also note that the V-C of UTS has been pointing to the fact that matching funds have to be provided for any grants to come from it, and that he believes that effectively it’s a sandstone V-C’s fund. His view is it will further entrench the financial position of the Go8.

    On the broader fiscal issue, I’d draw your attention to this analysis in an article of mine published today at New Matilda:

    The worst wedge of all is the way that the Budget is supposed to cleverly stymie Labor’s options for spending in the election campaign — the real purpose of the surplus and the Education Fund. But this is also to look to the political past, not the future.

    Amid all the talk of Rudd and ‘New Labor’ from the News Limited commentariat, no one seems to remember that Chancellor Gordon Brown promised to maintain Tory spending limits on public services for two years into the first term of the Blair Government. Swan has had extensive discussions with Brown, and he will certainly be aware that Brown’s promise ensured that British Labour overcame perceptions of economic irresponsibility. On ABC TV, Tony Jones and Kerry O’Brien appeared surprised when Swan promised not to spend the surplus (and implied that the Government probably will) and to fund Labor priorities by redistributing public spending.

    He’s deadly serious.

    Expect Labor — either in Rudd’s Budget reply, or closer to the election — to make this crystal clear.

    Labor will effectively follow the Blair/Brown model — calm the markets and economists with a pledge of absolute fiscal straightjackets and paint the incumbent Government as fiscally irresponsible. The implicit pledge to Labor supporters will be that spending will be more redistributive and more targeted to progressive priorities.

    There’ll be no policy auction or Labor attempt to trump Costello’s profligate spending.

    http://www.newmatilda.com/home/articledetailmagazine.asp?ArticleID=2238&HomepageID=193

    The two most important things Swan said last night were that Rudd is a fiscal conservative and that he absolutely promised that there would be a 1% surplus next year but he thought Howard would probably spend it during the campaign. That’s how Labor is going to run on economic management.

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  2. I think the politics of using the surplus for tax reform have become impossible with Ken Henry’s speech and market economists going around saying tax cuts would be inflationary. The endowment fund looks more exciting than the FF, but it will pretty much involve the same activity – investing in domestic and overseas shares to provide a stock of cash for future use. That’s probably a tad better than spending it on white elephants like high-speed broadband in Shepparton and Bourke.

    If what Mark says is correct, how will Rudd compete? He will be forced to reallocate funds in his Budget reply (which will involve creating a set of losers) and will have no response to the inevitable pre-election handouts when they come. On the Budget, if he backs down on the 2008 tax cuts (to those earning >$75K), he will look Lathamesque. I wait with bated breath.

    I think the difference with Blair/Brown is that British Labour did not preside over a recession.

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  3. Andrew, I’m pleased to see a bit of skepticism on the HEEF, as I was surprised the AVCC endorsed it apparently without qualification (if the media reports are accurate, always a big if).
    This is surely the educational equivalent of a “picking winners” industry policy. Julie Bishop said on the 7.30 Report that the final decisions rest with her as minister (and/or an “expert advisory panel — round up the usual suspects, Janet Albrechtsen and Paddy McGuiness).
    As a result, this will surely become a politicised fund. I’ll be amazed if the government’s favourite university, Notre Dame, isn’t among the early winners. And/or the money will go to, say, electoral battlegrounds in South Australia and mid-north Queensland, much like the National Heritage Trust.

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  4. Just a pedant’s point, Andrew – “fulsome” does not mean what you think it means. It’s not complimentary at all.

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  5. DD – I wondered about that when I wrote it, so I consulted a dictionary. The Oxford has a little note on usage, saying that its initial meaning was simply abundant, and that this is still used, but the correct meaning today (as you are pointing towards) is ‘excessively flattering’. They note that the term ‘fulsome praise’ can be ambiguous as a result. I decided that this ambiguity suited my post – the praise from VCs for something that will be around 2% of their revenue was fulsome in both senses of the word.

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