Out-of-control Vice-Chancellors?

The final 2009-10 budget outcome released today shows that exenditure on higher education blew out $200 million more than expected at the time of the May 2010 Budget. And even then they were forecasting a big increase on spending on top of what had been anticipated in May 2009.

What’s driving these financial blow-outs is a massive rush to enrol students before the 2012 lifting of caps on funded enrolment (which has not been legislated).

An article in the AFR a couple of weeks ago reported data showing 17 universities appear to be enrolled above the current 10% above-target funding cap.* Six are 17-19% above their original target number of funded students. For the additional students above the 10% cap universities get the student contribution amount (commonly called the HECS payment), but no Commonwealth subsidy.

This means that for unis the financial attractivness of over-enrolment varies a lot depending on discipline. For law and business courses where the Commonwealth subsidy is low anyway little is lost by over-enrolling. But in courses where the subsidy is high – 80% of revenue for science, for example – a lot is sacrificed. Continue reading “Out-of-control Vice-Chancellors?”

Support for tax cuts still low

Some of the Australian Survey of Social Attitudes 2009 results are now in the Australian Social Science Data Archive, so we can start looking at some trend data.

I’m sorry to report that support for cutting taxes compared to more spending on social services may have hit an all-time low in the history of Australian opinion polling. Though the precise question varies over time, we have similarly worded questions going back to the late 1960s. In 1967 and 1969, 26% of respondents wanted tax cuts. In 2009, it was just below that on 25% (though the lack of an explicit ‘depends’ option in the 1960s means that there were ‘soft’ supporters of both taxing and spending in their totals). The three most recent surveys are in the figure below.

Continue reading “Support for tax cuts still low”

HELPing the government to save money

The HELP loan scheme is very expensive to run. Its estimated program expenses are nearly $1.8 billion in 2010-11, mainly due to lending what I expect now exceeds $20 billion to students at only CPI interest, and annualised estimates of debts that are not expected to be repaid.

One thing that should be examined as a way of reducing these costs are the thresholds for repaying. Under current arrangements, in the financial year just finished HELP debtors will pay nothing if they earn less than $43,151.

Though that catches most new graduates in full-time work, my estimate from collating data from several sources is that at least one-third of HELP debtors in Australia in 2007-08 and not currently enrolled in a course incurring HELP debt did not make a payment that year.

I suspect that this proportion will increase over time because the thresholds are indexed according to movements in average weekly earnings. Over time, this is likely to increase at a higher rate than the earnings of new graduates. This is because AWE is influenced by ‘compositional effects’. For example, as relatively well-paid professional and managerial jobs have increased as a proportion of total employment this has helped push up AWE. Continue reading “HELPing the government to save money”

How expensive is student lending for the government?

The HELP student loans scheme involves significant expense to government. One of these is the cost of carrying around $20 billion in accumulated debts while only getting CPI indexation. Figures DEEWR gave me put this cost at $650 million for 2009-10.

The discount for paying upfront and the bonus for voluntarily repaying early are designed in part to help minimise this cost (their other purpose is to avoid the risk of non-repayment).

The discount especially has sometimes been criticised as an ‘unfair’ lower price to ‘rich’ people who can afford to pay upfront, as one commenter on another post did. While we can sensibly debate the level of the discount, which is now 20% but has been 25% and 15% in the past, the idea of the discount is sound. Given the cost of the interest subsidy, it can be cheaper to write off the discount now than to carry the debt. This either saves money for taxpayers or makes more money available for other government purposes.

Using the same male arts and law graduates in professional jobs on median earnings examples in an earlier post, I compared the cost to government of the different payment and repayment options. I assumed that the government borrows money at 6% and lends at 2.5%. Continue reading “How expensive is student lending for the government?”

The not-quite-nothing higher education budget

Last night’s budget is widely perceived as having delivered nothing for higher education. But if DEEWR’s portfolio budget statements are compared to last year’s, we can see that this isn’t quite true.

The relaxation of rules on how many students can be enrolled on full government funding rates is having more of an effect than the government anticipated last year. The extra students will cost the taxpayer $600 million more over the next three years than originally forecast. HELP lending will go up even more, with an extra $650 million in outlays if current predictions are right (this includes people borrowing full fees under FEE-HELP, as well as the HECS-HELP money associated with more Commonwealth-supported students).

Reaction has been neutral to negative because apart from full-fee students facilitated by FEE-HELP this money doesn’t solve the problems universities face of costs increasing more quickly than revenues. The would-be students who have missed out in the past due to quotas on university enrolments have never had much of a political voice, and so can neither praise nor condemn government policy on this matter. Continue reading “The not-quite-nothing higher education budget”

Mixed views on mining taxes

I had thought that the proposed resource super profits tax might be a political winner for the government, in a soak the rich sort of way. But this morning’s Nielsen poll reported in the Fairfax broadsheets suggested rather lukewarm support:

In a question which asked ‘Do you support or oppose a tax on the ‘super profits’ of mining companies?’, 47% were against and 44% were in favour. In this poll support for the ‘big new tax’ on shareholders in mining companies remains 14 percentage points behind support for the ‘big new new tax’ on people without dependent children and higher-income earners, aka the ETS. As is often the case, closely linking a tax to something the public supports helps it politically.

However Essential Research found another 8% of the electorate in favour of ‘higher taxes on the profits of large mining companies’, 52% approve, 34% disapprove, with a question that seems less framed to get a positive response than Nielsen’s (without the implication that there is something unfair about ‘super profits’). Perhaps a preceding statement about the Henry review gave the proposal some added credibility.

GST tax and spend

On the day the ABS’s annual taxation statistics showed a rare drop in annual average tax paid, Essential Research released a survey which found that 61% of us think that Australians pay too much tax, while only 4% say we pay too little tax.

Tax surveys have a history of being sensitive to the question asked. Another question in this Essential Research survey asked if the respondents were prepared to pay more GST for a series of specific programs. The answers to this question contradicted the answers to the first.

On all five items suggested more than 4% impliedly said we paid too little tax, given that 42% would pay more GST if the money was spent on health and hospitals, 38% said yes to aged pensions, 28% to infrastructure such as roads and railways, 20% to paying off the national debt, and 11% to create a foreign investment fund. And so much for the idea that the GST is to fund the states, too. Continue reading “GST tax and spend”

Actual versus perceived income

Andrew Leigh is reporting on 1999 research showing that many high income earners wrongly place themselves in lower income deciles and many low income earners place themselves in a higher income decile than is justified by their actual income (also cross-posted at Core Economics).

In the past (p.16) I have used this data to suggest that some people who agree to survey propositions that above-average income earners pay more tax – as 41% of people are in the latest Essential Research survey – may get a nasty shock when they find the taxman raiding their wallets.

While I still think this is likely to be the case, asking people to put themselves into the correct income decile is a big ask. I would expect more general questions such as average, below average, or above average would yield more accurate results. Using data from the 2005 Australian Survey of Social Attitudes and comparing it to 2006 census household family income data I found that accuracy improved but significant discrepancies remained.

(The image is not entirely clear: the three horizontal axis labels are below median <$52,000; median $52,000-$77,999, and above median <$78,000) Continue reading “Actual versus perceived income”

Familism meets feminism

Like big business and the some (most?) in the Coalition party room, I’m not keen on Tony Abbott’s ‘big new tax’ plan to fund an exceptionally generous income-maintaining parental leave policy.

On the other hand, I do think it is a natural evolution of recent Australian conservative thinking. As it put it in my ‘big government conservatism’ article a few years ago:

Modern conservatism.. does not actively discourage or prevent departures from the norm in social and family relationships. So no-fault divorce stays, [and] single parent benefits are retained … . Rather, modern conservatism uses the state’s financial resources to ‘support families in the choices they wish to make’, to ‘help families struggling with the challenges of modern life’.

What this means is the ‘familist’ state increasingly contributes to activities which were once the family’s responsibility. The massive expansion in the FTB scheme and the baby bonus under Howard, and the rapid expansion in childcare subsidies, are all part of this. Parental leave is a logical extension of this trend. Indeed, the social science case for full-time parenting in the first six months of a baby’s life is far stronger than the case for the FTB handouts.

Abbott defends his scheme in these evolutionary terms: Continue reading “Familism meets feminism”

Our incoherent HELP loan scheme

The government today introduced its legislation to increase the undergraduate FEE-HELP debt surcharge from 20% to 25%. For example, under the current system an undergraduate who borrowed $10,000 under FEE-HELP would incur a debt of $12,000. From 1 July 2010, if this legislation passes, they would incur a debt of $12,500.

I think we need to look at the cost and coherence of the HELP student loan system. There is possibly a case for increasing the surcharge. However, in the absence of a broader review I believe the Coalition should vote against this ad hoc and arbitrary measure.

As I pointed out when this idea was first raised, this targets most of the higher education providers offering students a second chance – the TAFEs and private feeder colleges (given the migration reforms announced on Monday, the non-public university education sector could be forgiven for thinking that this government is trying to put them out of business). Continue reading “Our incoherent HELP loan scheme”