Misinformed debate on public funding of universities

Brendan O’Reilly

In recent years there has been continuing debate about the level and adequacy of public funding for Australian universities. This follows changes in funding mechanisms, and reflects general recognition of links between the level of university funding, educational outcomes, social advancement, and economic growth. OECD educational expenditure data for Australia have been at the centre of this debate but have been consistently misinterpreted. Consequently key conclusions drawn by politicians and academics have been incorrect, though this is not widely appreciated.


Australian universities receive funding from a variety of sources. These include direct government (mainly Commonwealth) grants, fees from overseas and domestic students, Higher Education Contribution Scheme (HECS) charges, and other sources (including investment and research income).

HECS is the contribution most students are required to make towards the cost of their Commonwealth supported university course. Most students pay HECS through the Higher Education Loan Program (HELP), which provides income contingent loans generally repaid in the years after graduation. Those paying all or part of their HECS up-front receive a 20 per cent discount on their contribution.

Australian universities receive funding from a variety of sources.

By convention, measurement of the private and public components of funding to institutions is based on final payments. Consequently, any payment to universities by or on behalf of students is classified as private in OECD statistics. This applies even if the payment is subsidised indirectly by the Commonwealth. Such indirect funding from government to students (for example, scholarships, HECS discounts, HELP loans) is counted as part of total public spending on tertiary education (in the ‘public transfers and payments to private entities’ element) but is not counted as a public payment to tertiary institutions.

HECS up-front payments by students to universities are clearly private. Payments of the HECS discount and HELP loans elements by the Commonwealth are also private payments to institutions because they are made on behalf of students. In both OECD and Australian government statistics, HECS advances to universities by the Commonwealth are treated firstly as a public payment to households (either as a loan or a subsidy) and, subsequently, as a private (household) payment to tertiary institutions. This is despite their remission by way of bulk payments direct from the Commonwealth to individual universities.


The latest OECD educational expenditure statistics cover the period 1995 to 2005. Determining what they show about changes to Australian public funding for tertiary education over this period is a key issue. The matter has gained a political dimension because the start year of 1995 was the year preceding the first year of the Howard Government (1996–2007), thus encouraging usage of the series to track the impact of Howard Government education policies.

The Coalition, through two increases in HECS (1997 and 2005), had sought to increase the student contribution to university revenues. Labor, a raft of university academics including Marginson (2007, 2008, 2009) and McGaw (2007), and much of the press argue that our universities were left under-funded. This, they claim, is because OECD data show there was no real increase in public funding to universities under Howard. The Coalition, despite having cited OECD data to justify the 1997 increase in HECS, by 2007 was responding by claiming that the OECD data were flawed.

The Labor position was summarised by federal Education Minister Julia Gillard (2008, p. 6), who stated that:

There’s one over-arching problem facing our universities: stagnating levels of public funding. Between 1995 and 2005 public investment in tertiary education increased by 49.4 percent across the OECD, but in Australia it increased by zero percent. That’s right: zero.

Gillard’s statement was largely a repeat of criticisms Labor made of the Howard Government (including in Parliament) prior to the 2007 election, at which time they were claiming that OECD figures showed a decline of 4 per cent in real public funding for tertiary education between 1995 and 2004.

Both sides have key facts wrong.

John Howard (2007, p. 76) and the then Education Minister Julie Bishop (2007, p. 90) both responded by stating in Parliament that the OECD figures were ‘riddled with flaws’. This was allegedly because OECD data ‘omits all subsidies that the government pays under the HECS system’ and also ‘omits the majority, about 75 per cent, of the funding in vocational and technical education’. Mr Howard repeated these claims in the televised debate with Mr Rudd during the election campaign.


Given the conflicting claims, the question arises as to who is right. The answer surprisingly is none of them, because both sides have key facts wrong. While one can argue about the appropriate level of public funding, between 1995 and 2005 public expenditure on tertiary education was not stagnant in Australia, as Gillard and others have alleged. The true situation is that, on OECD figures, it actually rose by 14 per cent in real terms. (While a far cry from zero real change, this increase was admittedly still well short of the 33 per cent rise in the number of Australian tertiary students, according to OECD figures.)

Equally, the OECD figures are not flawed through leaving out any of HECS or through leaving out 75 per cent of the vocational education and training (VET) sector, as claimed in Parliament by Julie Bishop and John Howard. As the one responsible for many years for the submission of Australian data to the OECD, I can categorically state that all of government HECS outlays are in fact counted by the OECD, as are all outlays for VET vocational courses.

Most commentators (including Ministers) do not seem to understand the tables they are quoting from. The zero real change referred to by Gillard refers only to the sub-category covering direct public grants (Public Expenditure on Tertiary Educational Institutions in OECD jargon). This aggregate does not include HECS outlays by the Commonwealth, though they are included elsewhere.

The problem seems to be that most Australian commentators, when they see the term ‘public expenditure on educational institutions’ in OECD publications, tend to (wrongly) think it is the same as ‘public expenditure on education’. In reality, ‘public expenditure on tertiary education’ is comprised of two elements. The first element is ‘public expenditure on tertiary educational institutions’, which for Australia is mainly direct grants to tertiary institutions, which comprised 68 per cent of total public spending on tertiary education in 2005. The second element is ‘public transfers and payments to private entities’. For Australia this category is mainly comprised of government HECS/HELP outlays, grants and scholarships to students, and income support payments, which altogether comprised the remaining 32 per cent in 2005.

Most commentators do not seem to understand the tables they are quoting from.

Over the period 1995 to 2005 public expenditure on tertiary education in real terms rose by 14 per cent for Australia, according to OECD figures. This resulted from no real change in public expenditure on tertiary institutions, which was more than offset by a 64 per cent rise in public transfers to households and other private entities, which came largely via increases in HELP loans and HECS subsidies. Analysis of domestic education statistics collections will yield broadly similar results.

Virtually all commentators in recent years focused on the failure of public expenditure on tertiary institutions to rise in the decade to 1995. This was because this is the only time series regularly contained in the OECD hard copy ‘Education at a Glance’ (for reasons of limited space). The changes for the other aggregates, including total public expenditure on tertiary education, are available but need to be calculated from source data downloadable from the OECD’s education database.

Some commentators also seem unaware that OECD figures for ‘tertiary’ do not relate to any institutional sector (for example, the university sector or universities combined with VET) but instead to courses of a specific educational level. For Australia they include all courses of diploma level and higher, thus taking in the top 25 per cent or so of vocational courses, in addition to virtually all of university education. The OECD (contrary to claims by Howard and Bishop) does not omit the remaining 75 per cent of vocational courses (those below diploma level). These are captured at levels below ‘tertiary’, such as ‘secondary’, and ‘post-secondary non-tertiary’ in international classifications.

Figures for ‘tertiary’ minus the vocational element are a closer approximation to the Australian university sector than the published OECD figures for total ‘tertiary’. The relevant expenditure statistics, however, need to be calculated from the OECD’s education database but, broadly speaking; do not paint a greatly different picture to the published expenditure figures for total ‘tertiary’. The bottom line, therefore, is that the measure of public expenditure on tertiary institutions, which has attracted so much attention because it appeared very unflattering to the former government, is actually not particularly useful unless one wishes to focus solely on direct grants to institutions.

At a broader level, it is still clear that there was a squeeze on university funding, particularly in the early years of the Howard Government. In the face of 33 per cent growth in tertiary student numbers between 1995 and 2005, overall real public funding for tertiary education (direct grants to institutions plus payments to private entities) grew by only 14 per cent, and direct public payments to tertiary institutions showed no real growth. Figures for overall per capita expenditure on tertiary institutions show a 9 per cent real fall in total (public and private) spending between 1995 and 2000, and that this fall was not fully erased until 2005. Thus, as far as per capita funding for tertiary institutions was concerned, growth in private funding (especially HECS and student fees) barely compensated for stagnant direct public grants.

There was a squeeze on university funding in the early years of the Howard Government

One of the ironies of the Howard Government’s 2007 attack on the OECD data is that, early in its term, the Coalition used OECD educational expenditure statistics to justify increases in HECS. On that occasion they also got their facts wrong. When the Howard Government first increased HECS rates, the then Minister, Amanda Vanstone (1996, p. 8) stated that:

Recent OECD statistics show that (compared to the average 23 per cent HECS charge then borne by Australian students) on average students in the United States contribute around half of the cost of their course, while Japanese students contribute around 60 per cent and students in Denmark contribute 40 per cent. … The Government therefore believes that a higher level of HECS charge is justified.

The difficulty was that no OECD indicator, then or now, comes close to measuring student contributions to course costs. The quoted figures actually came from an OECD table quoting private shares of direct funding for tertiary institutions. The figures thus referred to all private payments to tertiary institutions from all types of private entities (even from companies) for all educational purposes (not just payments for course costs). They included corporate and philanthropic donations to universities, payments for university R & D, household payments to universities that might have been indirectly funded through scholarships, student loans and subsidies (for example, HECS discounts), and payments to universities for ancillary services. Consequently the quoted figures did not in any way justify the conclusion being drawn by then Minister Vanstone in order to defend the HECS increase.


Overall, much of the public debate on the funding of tertiary education in Australia has been very ill-informed. This is largely because the OECD’s Education at a Glance, from which key statistics are sourced, is a technical document and contains only summary tables in the hard copy text. Casual users generally lack an adequate understanding of the basic concepts underlying it and often try to interpret technically complex educational expenditure data intuitively.

Since more than one Minister, as well as a sitting PM, has provided Parliament with clearly misleading interpretations of OECD educational statistics, questions arise about the quality of advice provided to them in the first instance and about why the public record has never been corrected.


Bishop, J. 2007, House of Representatives, Official Hansard, No. 14, 19 September [Online], Available: http://www.aph.gov.au/hansard/reps/dailys/dr190907.pdf [2009, Jun 11].

Gillard, J. 2008, Address to the Sir Robert Menzies Oration 2008, Melbourne, 6 November [Online], Available: http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/QC1S6/upload_binary/qc1s60.pdf;file [2009, Jun 11].

Howard, J. 2007, House of Representatives, Official Hansard, No. 14, 19 September [Online], Available: http://www.aph.gov.au/hansard/reps/dailys/dr190907.pdf [2009, Jun 11].

Marginson, S. 2007, The 2007 edition of Education at a Glance: Where does Australia sit in the OECD Comparison? University of Melbourne, Centre for the Study of Higher Education Seminar Series: Ideas and Issues in Higher Education, 15 October.

Marginson, S. 2008, ‘Let’s work together to fix university funding’, The Sydney Morning Herald, 22 February.

Marginson, S. 2009, ‘The clever country slips away’, The Age, 4 May.

McGaw, B. 2007, ‘Why spend more’, New Matilda, 31 January.

Organisation for Economic Cooperation and Development 2008, Education at a Glance, OECD, Paris.

Organisation for Economic Cooperation and Development 2008, Online Electronic Database [Online], Available: http://www.oecd.org/document/54/0,3343,en_2649_39263238_38082166_1_1_1_37455,00.html [2009, Jun 11].

Vanstone, A. 1996, Higher Education Budget Statement 9 August 1996, Department of Employment, Education, Training and Youth Affairs, Canberra [Online], Available: http://www.dest.gov.au/archive/publications/budget/budget96/pdf/hedst.pdf [2009, Jun 11].

Brendan O’Reilly is a retired Commonwealth public servant currently pursuing private business interests. Between 1995 and retirement in 2008 he was Director in charge of Australia’s reporting of education statistics to the OECD and UNESCO at the federal education department. For many years he also represented Australia on the OECD Technical Group on Education and Training Statistics.