AUSTRALIA: Government intervenes to avert catastrophe

As the world recession hit the Antipodes during 2008, Australian universities began to see the beginning of a catastrophic decline in their investments and endowments. By the year's end, already cash-strapped institutions faced a calamitous A$800 million loss (US$570 million at the time), more than twice an earlier forecast. Government intervention, however, prevented a catastrophe occurring.

As occurred in the US, the nation's oldest and wealthiest universities saw the value of their properties and investments plummet. The University of Sydney revealed falls in its investments had resulted in cuts to its annual budget of 10% or some $150 million and staff were told to cut spending planned for 2009.

The University of Western Australia said it would slow its building programme to cope with its losses while other universities began making retrenchments and some called for the hiring of new staff to be put off until the financial situation improved.

The sudden fall led university vice-chancellors to warn that student services, teaching quality and job numbers would fall, along with hopes that higher education could aid national recovery.

But by early in 2009, vice-chancellors were markedly more confident and their organisation, Universities Australia, declared the core sources of revenue, comprising two-thirds of the $19 billion total annual expenditure on higher education, remained secure and losses were likely to be markedly less than those incurred in 2008.

"Most universities have managed these at-risk sources of revenue conservatively; they realised all along they were market sensitive and while these did support important areas of activity, they were not part of the core which could have been compromised," UA Chief Executive Dr Glenn Withers said. "Universities have been pretty good risk managers."

Withers said that if the government accepted recommendations of the Bradley review of higher education and allocated $6.5 billion more to universities over the next four years, this would boost federal contributions to higher education by 22%.

With demand for university degrees rising among Australian and foreign students, and enrolments on the rise, plus the need to provide indexation increases, it was possible that total federal contributions could exceed $9 billion in 2009-10, Withers said.

Hopes for a huge government boost were partly realised with the advent of the 2009 annual budget. The Labor government did announce a major commitment to higher education and university research but the spending boost was kept to $5.4 billion - and spread over four years.

That increase, plus policy commitments to improve funding of the unit costs of university teaching and research through higher indexation and indirect research rates, removed the prospect of widespread losses in staff numbers and a curtailment of enrolment increases.

Some $2.2 billion, or 38%, of the additional spending was recurrent, mostly related to expanding student participation, but including $500 million additional spending related to research. On the capital side, the budget represented the greatest level of government investment in university research infrastructure ever in Australia's history.

As the government began to wind back its stimulus spending, however, it announced it would pull $200 million of promised infrastructure funding from the sector.

Rather than stoking economic pressures, the vice-chancellors' organisation, Universities Australia, said the cancelled spending would have helped ease pressure by providing the infrastructure to boost skills, knowledge and productivity in the future.

The government had planned to release $550 million under a third round disbursement from the Education Investment Fund, but then cut it back to $350 million. The $200 million saved was to be retained in the EIF.

Even so, by opening the financial floodgates to prevent Australia collapsing into a full-scale recession and an unemployment rate in double figures, the government expected to build up a deficit of $57 billion over the following two years.

While there was widespread celebration at the time, realisation slowly dawned that the greater part of the $5.4 billion allocation would only come on stream over the next four to six years. Increases in funding to meet some of the indirect costs of research, including equipment and salaries, would not appear until 2014 while additional spending to make up for inflation rises were three years away.

Vice-chancellors began noting sadly that their ever-rising reliance on fees from foreign students to support their operations would continue well into the future.

University of Melbourne Vice-chancellor Professor Glyn Davis told reporters at the time, "The move towards full funding of research by 2014 is an important initiative although it will be some years before universities feel its full impact. Likewise, much-needed indexation for salaries is very welcome although it will not take effect until 2012..."

The announced spending increases, even if the effects would not be felt for some time, did mean that universities were not in the parlous position faced by others around the developed world.

As Dr Michael Gallagher, Executive Director of the Group of Eight research intensive universities, writes in our Features section in this edition, "Australia stands among only a few countries, notably the US and China, that purposefully have integrated university research capacity strengthening within their economic stimulus measures for handling the global financial-come-economic crisis."

geoff.maslen@uw-news.com