The Economics of Education: Funding the Gonski Reforms

19 April 2013

The moves made by the Government this week on Gonski's implementation, and the associated 'stealing' of funding from higher education to support the plans, has achieved little except make the overall education strategy from an economics perspective look very muddled indeed.

The critical issue in education policy is consistency across the educational lifecycle, and that is what strikes me as odd about the decisions made this week.

From an overall marketing of Australia as the international economic miracle that the Government likes to present and boast, there is a definite sound of a gun being cocked and aimed at a Government foot. I can see no other signal being sent other than that Australia has now a large enough problem with primary and high school education to merit a massive investment, it does not have the cash to deal with that, and moreover it is willing to play around with University sector funding in order to plug that problem. These are not good messages to be sending internationally.

While it is true that the greatest economic and social returns come from early years (pre-School) which is not even part of the Gonski debate in any serious fashion. Despite the strength of that argument, nobody working in the economics of education would see that as a call to withdraw funding from other parts of the cycle of Schooling - either secondary or tertiary education funding. What the finding on early years schooling shows is that at that point education investment is both equitable and efficient policy - it promotes a reduction in inequality and generates large economic returns for society. What happens later is that the focus of education policy needs to increasingly decide on which side of the trade off between economic outcomes and equitable outcomes you sit. That is not a case for reducing investment in any one sector, but rather it suggests that Government investment will naturally become more nuanced, more targeted at particular issues, to promote an economic outcome for Australia as a whole.

So, returning to the core premise of what is on the table with Gonski, the merits are deep and in parts pretty obvious but it is not without risk.

Put simply, on the basis of what economics research would suggest, you would not make such a massive funding push, but would instead target investment at problem areas in primary and secondary education, including tackling big issues such as teacher quality at school level, and empowering inspired school principals to push forward with reform within their Schools.

However, in choosing not to target the investments too sharply in Gonski while using higher education cuts to part fund the reforms, the Government has ironically targeted the cuts instead of the spending. In order to promote greater achievement before University, the Government has chosen to go for some of the few supports (such as the conversion to loans of what were previously grants) that consciously encouraged participation in higher education from those who are more at the margins of choosing to go to University.

Perhaps even more short-sightedly, they have hit hard at those who want to either deepen or reinvest in their skills to enhance their productivity, with the capping of tax breaks for further study. This will hurt institutions perhaps even more than the direct 'efficiency' cuts being imposed - in the long run the direction Australian institutions have been rightly taking, with a greater focus on postgraduate and research training, can be derailed by this change. But this will also hurt Australia more. The simplistic aim of raising the numbers going to Uni was always a pretty ill-informed target - the right target is to ensure that those who can and should go, but don't, can be enticed to change their view of the world. That gets rid of that problem of wasted talent - and that is good for Australian productivity. It is this loss of potential productivity that is the damage of this cut.

The need to debate the role and value of such support structures is well made elsewhere. That should have happened. But clearly a more coherent and consistent approach with a far greater emphasis on social equity (dare I say it, a Labour value?) would have been to increase HECS for those that could afford it and promote targeted supports - particularly for postgraduate education - that could promote participation.

The other fallacy here is the idea that decisions which impact on one cohort (Uni students) do not have a sort of ripple effect that spans generations. Parents and children form their decisions to stay in education long before Year 12. By even hinting that supports may not be there for them when they reach that point, you are actually dampening the potential impact of the 'Gonski' investment on participation right the way along the educational pathway.

Investment needs to be consistent across education years and pinching from one budget to cover off another does not grow the overall size of the investment in education, just the distribution within education spending. That is not something to do without expecting some consequence, so it is an important debate to have. That debate is now lost - in fact, it never happened - and as other commentators have noted, that money is never coming back to higher education.

Professor Colm Harmon is the Head of theSchool of Economics at the University of Sydney.

Contact: Kate Mayor

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