Universities upbeat over enrolment but still face pressure

Universities in New Zealand say there are early signs of recovery from last year’s record poor financial performance. However, they warn that ongoing underfunding from the government is putting them under pressure and forcing tough choices.

New Zealand’s eight universities are expected to record their first collective financial deficit when their 2023 annual reports are published later this year.

The bad performance was driven by an unexpected drop in domestic enrolments and prompted government funding body the Tertiary Education Commission to warn the incoming government late last year that the sector is facing “unprecedented challenges”.

Now universities are preparing to reopen for the 2024 academic year, and several are already reporting positive signs in their enrolments.

Among them, Victoria University of Wellington, where Vice-Chancellor Nic Smith said the return of international students following more than three years of COVID-driven border closures was especially important given the underfunding of domestic enrolments.

Victoria made significant staff cuts and a deficit last year, but Smith said 2024 would be better.

“Having made those changes and with the emerging picture of what enrolments are, we are starting to become more confident that we'll actually make a small surplus this year,” he said.

However, Smith stated that the sector was under stress.

“I think it’s been under stress for … a very long time. We have a system that for the better part of a decade has been funded at half the rate of inflation. While that funding envelope has decreased, it has put pressure on the kinds of cross-subsidisation that's been used to fund things that might be very important but not revenue-generating,” he said.

Greater differentiation

The Tertiary Education Commission’s briefing to the incoming government suggested it could use a review of the funding system started by the previous government to encourage greater differentiation between universities.

Smith said the government needed to figure out how to best spend its money to get a strong university sector.

“What I hope with the funding review is that we might start to see a funding model which actually encourages universities not to just all be the same, to all be chasing the same students and the same courses to generate the same surplus which we've seen producing the same courses in the same place … [instead] we might see institutions embracing what they're really excellent at and, actually, around the edges of a core series of offerings, offer things which are niche and serve the country more efficiently than we currently are,” he said.

Smith said universities should be sharing research facilities and expensive infrastructure.

He said that the universities had six separate music schools, all of which were under stress, and over the years had cut various languages.

“We don’t want to be prescriptive on what we should offer but we should also make sure we don’t repeat it in multiple places and that we don’t cut the same course in multiple places and lose capability that will take generations to build back,” he said.

Auckland University of Technology Vice-Chancellor Damon Salesa said universities survived decades of underfunding but the loss of foreign enrolments during COVID border closures amplified that financial pressure.

He said it forced universities to make decisions about what they could and could not afford to do.

“There are some capability risks but that's directly tied to the hard decisions that universities have to make because of the underfunding that we have consistently faced,” Salesa said.

He said the sector needed more funding: “In a globally competitive environment with a lot of knowledge being what will drive the transformation New Zealand needs to maintain our standard of living … universities need more investment rather than reductions.”

Salesa said enrolments for the new academic year looked positive, but COVID had disrupted traditional enrolment patterns, and it was difficult to make comparisons with previous years.

Sustainability remains urgent

Massey University Vice-Chancellor Jan Thomas said achieving financial sustainability remained an urgent job. The university began significant staff cuts last year following a drop in domestic enrolments. Thomas said the loss of international students and rising inflation also had a significant effect.

She said government funding provided 40% of the university’s income but the government set limits on increases to domestic student fees which accounted for a further 20% of income.

“On fees and funding alone, the government decisions impact nearly 60% of revenue. Government decisions around funding determine the extent to which Massey can continue delivering high quality teaching and research outputs. Government funding has increased at a rate consistently lower than CPI [consumer price index], leading to some of the financial challenges Massey is facing,” she said.