My criticisms of Labor’s policy of abolishing full-fee undergraduate places at public universities had a good run in The Australian‘s Higher Education Supplement this morning. Amazingly, even though Labor has being saying for 10 years that they will abolish these places, they cannot give basic details about how it will be done. A bit like the Americans invading Iraq, it seems like they have little idea about how they will run the country once they have won the war.
What we have so far is that these places will be phased out beginning in 2009, and that the universities will be compensated to the tune of $300 to $400 million. But as I pointed out to the HES, from a public policy perspective the most important issue is not the compensation (though more on that below), it is what happens to the student places created by the full-fee policy.
According to DEST, in 2006 there were 13,762 full-fee domestic undergraduate students at Australian public universities (the number of effective full-time places would be lower, but they have not published that number yet). That’s about 2.5% of all domestic undergraduate students. Are we supposed to remove 2.5% of the system’s undergraduate capacity? Shrinking the number of places in disciplines with graduate undersupply – there are many full-fee students in medicine, dentistry and veterinary science – doesn’t sound very sensible, and is hardly consistent with Labor’s rhetoric about skills shortages.
Perhaps the ‘compensation’ isn’t really ‘compensation’, it is just money to pay for Commonwealth-supported places (CSPs) instead, as the full-fee students complete their courses sometime in the future. But the HES couldn’t get a straight answer:
Yesterday the HES put a series of questions to Mr Smith’s office, including what would happen to the extra places underwritten by full fees, but his spokesman said it was premature to answer.
‘Premature’ after a ten year policy pregnancy! Stillborn seems closer to it.
But if the money is ‘compensation’ for the financial losses of universities, how should it be calculated? For a start, it is not clear that universities would incur significant losses to begin with. It makes no difference, from a financial perspective, whether full-fee students are Australian or international. So ‘compensating’ universities for the loss of full-fee Australian places would, if they replaced them with overseas students, give them a windfall gain for doing something Labor thinks they should never have done in the first place.
If compensation is to encourage universities to keep domestic students, how much should Labor pay? Universities would hope for the difference between the CSP rate and the full-fee rate, but that means a substantial difference in the ‘compensation’ paid per university, as the level of full-fees varies a lot. If the policy aim is to maintain student numbers, then why not put the places out to tender, so that they go to cheaper universities? Or perhaps that would reveal that the base funding rate is too low, so overall it is cheaper to chuck cash at the Group of Eight than to pay everyone a viable rate? But if there is going to be an ad hoc compensation deal, for how long should it continue? After all, if Labor is letting the existing full-fee places phase out, the compensation would be for places the universities may never have been able to fill on a full-fee basis anyway.
There are several roads Labor could travel down with this full-fee phase-out and compensation policy, but there is a policy shambles waiting for them at the end of every one.
The only way out is for Labor to do what the Coalition never could – deal with the two underlying problems that made the full-fee places a second-best option replacing a third-best option. These problems are the quota system, which restricts the supply of places in high-demand courses, and the pricing system (ie the Commonwealth contribution plus the student contribution), which puts revenue per student below costs per student.
While I think price deregulation is necessary, Labor could go a long way if it set Commonwealth contributions at rates matching real costs. It seems that ‘economic conservatism’ is standing in the way of this idea. But Labor already has its $300-$400 million ‘compensation’ package that would be far better spent on fixing the price system than whatever they are currently planning to do with it. And I am sure my local member, soon-to-be Finance Minister Lindsay Tanner, has lots of silly government programmes that could be cut to raise the necessary extra money.