Policy and Financial Challenges Facing Australian Universities

Frank Larkins

ACDS AGM and Conference 25-26 October 2021 – Speaker Summaries

Professor Frank Larkins, Hon Prof Fellow, University of Melbourne

The financial health of 37 Australian Universities was assessed by reviewing their respective 2020 Annual Reports. The total income reported for 2020 was $35.7B, which represents a reduction of $1.8B compared to the corresponding revenue in 2019. Unfortunately, since this decrease was only 5 % of our operating income, the Higher Education (HE) sector did not qualify for the Federal Government’s Job Keeper payments.

The most surprising contributor to the decrease in revenue was investment income, which decreased by $1.3B in 2020 compared to 2019. Some Universities lost as much as 70 % of their investment income in 2020. The G08s were most impacted, given their significant investment portfolios. Since most Australian Universities fund their research activities from their discretionary income, the loss of investment income has impacted adversely on our capacity to support research.

Substantial increases in expenditure on “Employee Entitlements” were noted for all Universities in 2020, due mainly to expenditure on redundancy payments.

In terms of the overall financial position of Australian Universities in 2020 compared to 2021, there were seven Institutions that actually improved their net income, with surpluses being reported. However, on average, Universities were 4.5 % worse off in terms of net financial position.

Overall, as many as 17 Universities have been very resilient in managing the impacts of the COVID‑19 pandemic in 2020. Frank articulated his expectation that our Institutions’ financial positions in 2021 would improve compared to 2020. In particular, there is an expectation that most Universities would recover their investment returns in 2021 given the recovery in the equity and property markets during the past 12 months. The one-off injection of $1B by the Federal Government in 2021 to support research will also have a positive, short-term impact. Overall, the total increase in revenue in 2021 is projected by Frank to be around $3.4B, which is a 10 % increase over the corresponding 2020 income.

Despite the positive impact of the revenue sources noted above, the significant “elephant in the room” is the negative impact of International-Student revenue on University income. The overall impact of this is not yet known.

Universities Australia (UA) has estimated that the Australian HE sector lost around 20,000 jobs in 2020 (Note: the most recent data provided in the HE Data Cube indicates an overall loss of 20,195 FTE from 2019 to 2020 across the sector (-14.7 %), comprising 53 FTE at Level D/E (-0.3 %); 47 FTE at Level C (-0.4 %); 2,594 at Level B (-14.6 %);  11,259 at Level A (-57.5 %); and 6,243 non-academic (-8.5 %)). UA have further estimated that the total job loss by the end of 2021 could be as high as 40,000 FTE. If this did occur, then the HE sector would be facing a 30 % reduction in our workforce by 2022.

During 2020, the ARC commissioned a review of the ERA and EI initiatives. The report, which was released in June 2021, offered 22 recommendations, all of which were accepted by the ARC. There were 112 submissions made to the Review, which highlighted several broad areas of concern, including the transparency of the ERA/EI assessments; their cost; their relevance; their credibility; their financial benefit; and their academic benefit. The ARC has indicated that it will respond to the report by June 2022, suggesting that there is an opportunity to influence their implementation of the recommendations. Frank wrote a paper that articulated important policy issues that the ARC’s Review failed to address. For example:

An opportunity has been missed because the members of the Advisory Committee did not articulate solutions to address the issues raised. For example, they indicated that the ERA process was no longer “fit for purpose”, but no alternatives were proposed.

As an example of the potential flaws in the ERA process, Frank proposed that it is not credible that 25 of the 27 Australian Universities undertaking research in mathematical science would be working at above “World Standard”.

The criteria used to assess the various FOR-Code areas should recognise that “one size does not fit all”. For example, there are many more science based FOR domains in which we are assessed as being above world standard compared to HASS disciplines, despite the different approaches used to assess the different disciplines. The science-based disciplines should be assessed separately.

The benchmarks for assessing Australia’s research excellence should be based on a small number of “developed” English-speaking countries, rather than including the outputs of emerging countries. This smaller benchmarking group might include USA, UK, Canada and NZ, to restore the integrity of the ranking process.

The expense and time commitment required of Universities to provide the necessary inputs for the ERA and EI processes cannot be justified, based on the questionable value of the outcomes and the limitations associated with defining and implementing the metrics. The Advisory Committee indicated that there is no set of quantitative indicators that adequately captures the broad range of research impacts.

Questions from the Floor

  • Question: Given the many significant issues that are impacting on the sector at present, what is the way forward?

Response: Given the current position of the Federal Government, an approach that is resonating in Victoria (for example) is to make the State Government fully aware of the challenges being faced by our Universities, because of their impact on the respective State economies. In Victoria, Education is the Number 1 Export market, and the State Government is well aware of the impacts being felt because significant effort has been invested by University leaders in building relationships with State-Government politicians and key Department Heads.

  • Question: In view of the significant reduction in staffing across the sector, is there an opportunity to reconceptualise the way in which our staff operate across the broad pillars of T&L, research, etc?

Response: The “COVID-normal” for the future will be different to the “normal” of the past, and we need to consider new operating models and the need to be nimble. One point raised in response was the need to marshal senior Industry leaders to advocate on our behalf about the importance of maintaining our research base, given that our sector is an intellectual “powerhouse” that can support and grow our Sovereign Capability. It was also indicated that those Universities that appear to have been more resilient in managing the impacts of the COVID-19 pandemic in 2020 were not as reliant on income from Investments or International students to support their operations.

  • Question: How have Universities used their financial reserves to address the challenge posed by COVID-19?

Response: There is a wide spectrum in the financial reserves available to Universities, although some of these are not sufficiently “liquid” to be available for short-term use. Many of the well-established Universities had significant reserves available to provide a short-term buffer during the pandemic (with the University of Sydney being a good example), although this option was not available to the majority.