New Zealand's universities reported their poorest financial performance in five years and it appears that worse is to come.

With the annual reports for 2008 of all eight universities now published, the figures show the institutions made a collective surplus of $75.5 million (US$50.2 million) last year, their lowest overall surplus since 2003 and well down on the 2007 figure of more than $101 million.

The surplus was equivalent to about 2.8% of the sector's income for the year, the lowest proportion this decade. The outcome included two deficits - at Waikato and Lincoln universities.

This year's results were not expected to reveal any deficits although lower surpluses than last year had been forecast by several universities, including one of the country's most successful, the University of Otago.

Otago Vice-chancellor Professor David Skegg told staff the university expected less income because of lower interest rates and it also faced cost pressures. But Skegg warned that government decisions, including a $20 million cut to salaries funding across the university sector, meant the university faced a real decline in income from 2011.

He said a task force would advise on responses to the situation and it seemed inevitable the university would need "to contemplate some reductions in the numbers of academic and general staff".

"The recent government decisions mean that the situation will become more difficult in 2010 and much more difficult in 2011."

New Zealand's universities have long argued they needed increased income to be competitive internationally. The previous government recognised their argument in part by providing $61 million a year specifically for staff pay as well as boosts to research funding.

But the current government announced in May that it would trim $22 million from that funding from 2011. It also axed $10 million in change funding and cut a range of scholarships.

John.Gerritsen@uw-news.com

* John Gerritsen is editor of NZ Education Review.

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