University funding reform is the discussion we must have

As any vice-chancellor will tell you, it is music to our ears when a politician wants to listen to ideas about higher education. Universities are responsible not just for transmitting knowledge from teacher to student, but for creating new knowledge. For that knowledge to be used by policymakers in a systematic and sensible way is ideal.

Newly minted Education Minister Simon Birmingham's undertaking to listen and consult is a promising sign. I'm sure he will receive many contradictory and colourful ideas, from students, universities, staff, industry and unions. I sincerely hope he listens to them all because the entire community has the opportunity to benefit.

It is a great thing for the country that we have a Prime Minister and an Opposition Leader who value the contribution of research and innovation not just to the economy, but to our national wellbeing. We can only hope that the next election is a race to see which party can best provide policies that allow us to be world-class in not just our production of research, but in its use by industry to underpin innovation in our economy.

But in doing so there are several facts which are not widely understood.

First, it is an undeniable fact that the actual costs of quality university research and research training are not covered by the government grants. The result is that universities largely subsidise their research by using income from teaching activities in which they make profits. With fees regulated for undergraduate domestic students this means that universities use the (uncapped) fees from postgraduate and international students to meet these costs. At the University of Sydney we estimate this cost at more than $250 million annually. Given the increasing need for postgraduate qualifications in many sectors, this is a concerning trend. Meanwhile, strong demand for Australian education from Asia cannot be taken for granted.

Second, the true cost of teaching many university courses far exceeds what we receive though Commonwealth grants and student contributions, as identified in the 2011 Lomax-Smith Review of University Base Funding. For example, we lose more than $20,000 a medical student a year. We teach all of the underfunded courses identified by the report (including medicine, agriculture, dentistry, veterinary sciences and music performance) and so the funding challenges are acute, as they are at many research-intensive universities. At the time the report was made public, there was no policy response from the government, even though it warned of perverse and unintended consequences should the status quo be allowed to continue.

Third, the main barrier to accessing university for disadvantaged students is not the fees, but in the prohibitive cost of meeting everyday living expenses – particularly if they need to move to study. Last year I said that the University of Sydney would create a fund of $60 million for such support with income earned if fees were deregulated, but we cannot address these issues while we continue to subsidise our research and core undergraduate offerings.

Finally, it is an uncomfortable fact that many undergraduate students are from very well-off backgrounds. At the University of Sydney, about a third of our students come to us from schools where the annual fees are greater than the $16,000 a year that we would have charged in a deregulated system. It is easy to say that education should be free – and I agree – but much harder to acknowledge that 40 years after the abolition of upfront fees, government-subsidised places at universities are still not accessed equally. The status quo is not perfect and any assessment of future options should not pretend that it is.

Of course, the options for new income sources are finite. My preferred option is for a significant injection from governments, but I do not expect this in the short term given the challenges facing the federal budget. The second option is for students who benefit from subsidised places, and can afford to do so, to pay more. The third is that we find ways of spending the billions the government already invests in the research and innovation system more effectively. Any innovative solution will probably involve a combination of all three. Like many in the sector, we will be turning our minds to what such a proposal could look like, and welcome the opportunity to present them to the government, opposition and community for consideration.

Dr Michael Spence is Vice-Chancellor and Principal of the University of Sydney. This article was first published in The Sydney Morning Herald.