NAB’s economists have analysed what last night’s Federal Budget means for the Education sector.

NAB’s view:

Much like the Healthcare sector, there appears to be a focus in education around reducing government costs and increasing the contribution from states.

The expansion of the HELP scheme and Trade Support Loans may encourage a greater number of students to take on a trade-based education – which could potentially address concerns around skills shortages in key industries.

The Government says it wants to cut red tape to “set the sector free”. The deregulation of tuition fees builds upon the previous Government’s removal of caps on education places, attempting to move the sector towards a demand-driven model. Higher costs for some courses may impact their demand – however the long term nature of HELP repayments could limit this impact.

Deregulation of fees could have a differing impact on individual institutions – depending on size, reputation, location and course offerings. Smaller and regional universities may find that with fee deregulation they could be at a financial disadvantage compared with the more prominent universities.

Despite qualified support for Labor’s Better Schools (Gonski) funding plan during the election, the Government is not going ahead with this model based on a per-student resourcing standard with disadvantage loadings.

In the 2013/14 Budget the Commonwealth said that it would lift its annual funding by 4.7% and the States, who negotiated separate deals with the Commonwealth would lift theirs by up to 3% annually. These arrangements were set to be gradually introduced over the period out to 2018/19 and were very costly.

With regards to the school funding arrangements, the Coalition’s election platform said they would follow the existing funding arrangement for the first four of its six years. The Education Minister has questioned Labor’s commitment to honouring it through the final two years of its planned life and the Commission of Audit has said that the current school funding system is “complex and its growth rate has been arbitrarily, and unsustainably high”.  It estimated that Commonwealth funding per student would rise by 50% in real terms through the next decade and the school funding task would shift away from the States and toward the Commonwealth.

The big winner here should be the Commonwealth budget.  Most likely the States will lose out (the NSW Treasurer has been quoted as saying the change will cost his State $1.2 billion over four years) as well as schools, as it’s quite possible that the sums eventually spent on per student funding turn out to be lower than those that would have flowed from existing funding policy.

Key initiatives:

• From 1 January 2016, tuition fees for higher education providers – universities, private colleges and TAFEs – will be deregulated, allowing providers to set their own fees for courses offered. The Government will expand the Higher Education Loan Programme (HELP) to cover non-university providers. Changes to income thresholds for repayment and indexation arrangements are expected to save the government $3.2 billion over four years.
• Higher education providers will be required to direct 20% of additional revenue from increased student fees to a scholarship scheme to improve access for disadvantaged students.
• Reflecting the deregulation of tuition fees, the Government’s contribution to new student fees will be reduced by 20% on average and indexed to the CPI. This measure is expected to save around $1.1 billion over three years (from 2015-16).
• A range of government savings are generated by ceasing existing programmes – such as the HECS-HELP benefit, Higher Education Reward Funding and Research Training Scheme funding (with this measure set to save $174 million over three years).
• From 1 July 2014, the Government will provide concessional Trade Support Loans of up to $20,000 over a four year apprenticeship for those learning a trade.
• Abolition of last 2 years of school funding, replaced with lower cost alternative to support the Commonwealth Budget. The Government will maintain the ‘Students First’ arrangements for recurrent funding to the end of the 2017 School year, it will provide $54 Million in 2017/18 to maintain the real value of Commonwealth school funding in that year and after that it will lift recurrent school funding using adjustments for the CPI and enrolments.

Industry comment:

Australian Postgraduate Association feared student debt would escalate dramatically, faced with deregulated university fees, cuts to Commonwealth contributions along with other research cuts.

Universities Australia was disappointed the majority of increases in student fees would be offset by reduced government funding but pleased the Government had continued a fellowships program for mid-career researchers and research infrastructure funding.

Top research universities welcomed the moves to deregulate student places and fees. “These historic reforms reconcile access and quality and make growth affordable,” said Group of Eight chairman Professor Ian Young.

Private higher education providers are thrilled the government will open up subsidies to all diploma and sub-bachelor students. “This budget delivers all that we’ve been seeking in equitable treatment of students, diversity of institutions and choice,” Council of Private Higher Education chief Adrian McComb said.

For more Federal Budget insight and analysis, visit NAB’s Federal Budget Hub.