The financial impact of policy reform on the Australian university sector 1988–2019

Abstract

The 1988 Dawkins reforms were designed, at least in part, to encourage public universities to organize themselves as if they were corporate enterprises, in order to create a more efficient and competitive sector that was less reliant on government funding. This paper assesses whether successive policy changes since the 1988 Dawkins reforms have achieved these efficiency, competition, and funding objectives. It does so by examining their financial performance over time, applying the techniques employed by investment analysts in the private sector to assess the performance of market participants. It demonstrates that the policy changes have reduced efficiency and competitiveness, and weakened the financial position of a number of universities. It provides empirical support for previous research highlighting the significant structural and regulatory constraints on the creation of a competitive market in higher education. Furthermore, it demonstrates that 35 years of policy change have merely reinforced pre-existing market positions and that, even before the impact of the COVID pandemic is considered, the financial position of the sector has been weakened as a result of the changes.

Appendices

Appendix 1 Financial Analysis Categories

	Analysis Category	Calculation basis
1	Revenue	Sum of Analysis Categories 2-8 below
2	Grant Funding	Sum of Commonwealth Grants Scheme and Other Grants
3	HELP	Sum of HECS-HELP - Australian Government Payments FEE-HELP - Australian Government Payments
4	Research	Sum of DIISRTE Research Grants Education Investment Fund and One-off Capital Grants Australian Research Council
5	Other Government Assistance	Other Australian Government Financial Assistance
6	International Fees	Fee Paying Overseas Students
7	Other Fees	Sum of Fee Paying Non-Overseas Postgraduate Students Fee Paying Non-Overseas Undergraduate Students Fee Paying Non-Overseas Non-Award Students Other Domestic Course Fees and Charges Other Fees and Charges
8	Other Income	Sum of Investment Income Royalties, Trademarks and Licenses Consultancy and Contracts Other Income
9	Expenses	Sum of Employee Benefits and On-Costs Depreciation and Amortisation Repairs and Maintenance Finance Costs Impairment of Assets Investment Losses Deferred Superannuation Expense Other Expenses
10	Academic Employee Benefits	Sum of Academic Salaries Academic Contributions to Superannuation and Pension Schemes Academic Payroll Tax Academic Workers Compensation Academic Long Service Leave Expense Academic Annual Leave Other Academic Employee Benefits
11	Non-Academic Employee Benefits	Sum of Non-Academic Salaries Non-Academic Contributions to Superannuation and Pension Schemes Non-Academic Payroll Tax Non-Academic Workers Compensation Non-Academic Long Service Leave Expense Non-Academic Annual Leave Other Non-Academic Employee Benefits
12	Margin	Net Operating Result for the Year. It is based on underlying operating profit, without adjustments for abnormal revenue or expense.
13	Tooth-to-tail ratio	Tooth-to-tail ratio (T3R) is, in US military terms, the amount of personnel required to support combat soldiers (McGrath 2007). In this context, it is used to compare the costs of academic and non-academic staff. A ratio of 0.5 indicates that the cost of academic and non-academic staff is the same. The higher the ratio, the greater the proportion of academic costs. It is calculated as follows: Academic Employee Benefits/(Academic Employee Benefits+ Non-Academic Employee Benefits). It is a proxy for operating efficiency.
14	Jaws ratio	As used in the financial sector, a measure of the ratio between revenue and expense growth over time and expressed as a percentage (Alvarez & Pariente 2020). A positive ratio demonstrates improved margin over time, indicating that each increased $1 of expenditure contributes to a greater than $1 increase in revenue. The reverse is also true and indicates declining financial health. It is calculated as follows: Revenue Growth Rate - Expense Growth Rate
15	Cost-Income Ratio	A measure of cost-efficiency, calculated by dividing total cost by total revenue, expressed as a percentage. In the case of the university sector, subtracting the cost-income ratio from revenue will show margin.

1. Source: Derived from Table 1. Adjusted Operating Statement for each Institution and Table 2. University Operating Expenses before Abnormal Items by Activity, Type of Expenditure (Department of Education Skills and Employment 1996a) Table 1. Adjusted Statement of Financial Performance for each HEP, 2011 ($'000) (Department of Education Skills and Employment 2011a) Table 1. Adjusted Statement of Financial Performance for each HEP, 2019 ($'000)(Department of Education Skills and Employment 2019c)

Appendix 2 Universities in the sample

Network	University	Marginson and Considine Classification	Merged by 1994 unless otherwise stateda
Group of Eight	Australian National University	Redbrick	Australian National University Canberra Institute of the Arts
	University of Adelaide	Sandstone	University of Adelaide Roseworthy Agricultural College
	Monash University	Redbrick	Monash University Chisholm Institute of Technology Victorian College of Pharmacy
	University of Melbourne	Sandstone	University of Melbourne Hawthorn Institute of Technology Victorian College of the Arts
	University of NSW	Redbrick	University of NSW Australian Defence Force Academyb
	University of Queensland	Sandstone	University of Queensland Queensland Agricultural College Queensland College of the Arts Queensland Conservatorium of Music
	University of Sydney	Sandstone	University of Sydney Sydney CAE Cumberland College of Health Sciences Sydney College of the Arts NSW Conservatorium of Music Orange Agricultural College (1995-2004)
	University of Western Australia	Sandstone	University of Western Australia
Innovative Research Universities	Flinders University	Gumtree	Flinders University Sturt Campus of South Australia CAE
	Griffith University	Gumtree	Griffith University Brisbane CAE Mount Gravatt Campus Gold Coast CAE
	James Cook University	Gumtree	James Cook University Townsville School of Arts and Design of Townsville College of TAFE
	La Trobe University	Gumtree	La Trobe University Bendigo CAE Wodonga Institute of Tertiary Education Lincoln Institute of Health Sciences
	Murdoch University	Gumtree	Murdoch University
	University of Western Sydney	Newc	Nepean CAE Hawkesbury Agricultural College
Australian Technology Network	Curtin University	Unitech	Curtin University
	RMIT University	Unitech	RMIT Phillip Institute of Technology
	University of South Australia	Unitech	South Australia CAE South Australia Institute of Technology
	University of Technology Sydney	Unitech	NSW Institute of Technology Kuring-gai CAE
Regional Universities Network	Charles Sturt University	New	Mitchell CAE Riverina-Murray Institute of Higher Education Riverina CAE Orange Agricultural College (from 2005)
	CQ University	New	Capricornia Institute of Advanced Education
	Southern Cross University	New	Northern Rivers CAE
	University of New Englandd	Gumtree	University of New England Armidale CAE Orange Agricultural College (1990-1994)
	University of Southern Queensland	New	Darling Downs Institute of Higher education
	University of the Sunshine Coast	New	Sunshine Coast University College.

1. ^aDerived from Marginson and Considine (2000, pp. 45-46)
2. ^bMerged in January 2007
3. ^cAlthough a Marginson and Considine New University its metropolitan nature made it a better fit to the IRU
4. ^dTechnically a Gumtree according to Marginson and Considine, but its geographic location made it a better fit to the RUN

Appendix 3

Table 1 Key Indicator Comparisons 1996

Table 2 Key Indicator Changes 1996−2011

Table 3 University Ranking by Revenue and Margin, 1996, 2011 and 2019

Table 4 Key Indicator Changes 2011-2019

Table 5 Financial ‘Shares” by Network, Income Category and Enrolment 1996, 2011 and 2019

Appendix 4 Comparison of Means

A one-way ANOVA test on 1996 data illustrates the significant difference between the networks (F (3,19) = 20.121 p = .000). A Tukey post hoc test confirms that there were statistically significant differences between the Group of 8 and all other networks (IRU 266.8, p=.000; ATN 204.5, p =.004; RUN 338.0, p=.000). There were no statistically significant differences between the other groups. The difference in means is plotted below, which clearly demonstrates the dominant position of the Group of 8 and the similarity between the IRU and ATN.

In 2011, as in 1996, there was a statistically significant difference between the networks in revenue terms as indicated by a one-way ANOVA as indicated in Appendix 4. (F (3,20) = 23.656 p = .000). A Tukey post hoc test confirmed that, while the shape of the means plots had remained the same since 1996, the statistically significant inflation adjusted differences between the Group of 8 and all other networks had grown (IRU 533.2 p=.000, ATN 440.4 p =.002, RUN 696.5 p=.000). There were no statistically significant differences between the other groups.

In 2019, the statistically significant revenue difference remained F (3,20) = 15.786 p = .000). A Tukey post hoc test confirmed that, while the shape of the means plots had remained the same since 2011, the statistically significant inflation adjusted differences between the Group of 8 and the other networks had grown (IRU 764.247 p <.05, ATN 608.082 p<.05, RUN 941.543 p<.05).