University funding challenges – Part 1

Financial challenges and job cuts at the Australian National University and the University of Canberra have dominated media and public discussions in the ACT and nationally in recent weeks.

Last week the ANU published details on its website saying it needed to make savings because the “University’s projected 2024 deficit of $60 million is now in excess of $200 million.”

The University of Canberra is reported by the ABC (and other media) to be looking at cutting 200 jobs as part of “urgent and significant measures to re-balance the institution.”

Sadly, they are not the only universities facing difficult financial positions and looking at job cuts. In a recent article in The Guardian job cuts and budget concerns were reported to be impacting the following universities:

• James Cook University is reported to be cutting 67 jobs (on top of the 100 cut last year) – although The Australian has that figure as a “net reduction of 50 jobs”)
• Griffith University is understood to be aiming for fewer than 50 redundancies to deal with “significant financial losses”
• the University of Southern Queensland has not yet announced how many jobs it will cut but is reported to have told staff they need to address a “$32m budget hole”
• Macquarie University is warning of “significant reductions to casual staff”, and
• the University of Wollongong is looking to deal with a $35m reduction in revenue which the NTEU has calculated could mean more than 200 job losses.

Although these cuts come as the sector and the Federal parliament debate internatonal student caps – the underlying issues driving these financial difficulties do not rest solely on changes in international student policy and revenues.

As John Ross reported back in May for Times Higher Education on his analysis of the university annual reports for 2023 that were available at the time:

“Soaring investment returns and improved international education earnings prevented a large group of Australian universities from plunging deeper into deficit last year, financial accounts have revealed.

But with the investment windfalls monopolised by a handful of rich institutions, a wealth gap within the sector is widening. And with international education income jeopardised by the federal government’s heavy-handed treatment of student visas, the future of some universities appears bleak.”

While each university has its own set of unique circumstances, all publicly-funded universities have been impacted by the reduction in government funding as a result of the former government’s Job-ready Graduates funding reforms.

The Job-ready Graduates package cut government funding, and significantly increased student contributions, such that today approximately 40% of undergraduate students are paying 90% of the cost of their degrees.

These factors, combined with the pandemic altering study patterns for different groups of domestic and international students, the low rate of unemployment in Australia since the pandemic (making university study less attractive for some students), and cost of living pressures making some students reluctant to take on high levels of debt to fund their studies, have all had an impact on different universities in different ways.

On top of these factors there has also been chronic wage underpayment in the sector and hence not only do universities need to make funds available to repay affected staff, they need to factor in higher salary rates in the future to ensure staff are properly remunerated. And university budgets also need to accommodate (or find loopholes around) recent changes in employment law designed to reduce the sector’s over-reliance on casual staff.

In addition to all of the above factors impacting university finances, this year the sector has also seen a decline in the international rankings of 17 publicly funded Australian universities saw this year (with rankings helping universities attract more international students).

There has also been increased scrutiny on international student visa applications this year, which has seen some universities experience much higher rates of visa rejections than they did previously. At the same time priority visa processing for other universities has made them more attractive to students.

And then there is the need for all universities to maintain research excellence in at least half of all the fields of study they offer (a recent benchmark which institutions must meet to retain their university status and funding). This latter requirement does not impact most universities but my previous analysis shows it is a challenge for some and it is a likely driver in the closure of some courses at some universities since its introduction.

The Minister for Education, and the sector, hoped that the Universities Accord Panel would be able to provide workable recommendations to address the challenges facing universities in relation to funding for their teaching and research activities. Regrettably, because of the lack of precise, detailed and actionable recommendations in the Panel’s final report – the Accord process has merely kicked the can down the road when it comes to university funding reforms (as I have noted and as have others).

In essence officials in the Department of Education have had to go back to square one and develop their own new funding models and programs for the university sector which will ultimately be actioned by the Australian Tertiary Education Commission – but not for another year or two. That will mean the funding cuts of the Job-ready Graduates model will have been in place in the sector for close to a decade by the time it is replaced – assuming that there is no change of government in the interim…

And hence, with international student revenues in decline this year for some universities and/or with declines in international students looming next year – budget savings are being sought, and regrettably that means job cuts.

A look at the potential impact of the proposed international student caps on the universities identified above as they look for budget savings – shows different trends for each of the universities – and a different impact when compared with their pre-pandemic international student numbers, their 2023 enrolments and their current enrolments.

So for some of the universities looking at staffing cuts – clearly their future international student numbers are a factor. But student numbers only tell a part of the story… University annual reports provide further insights.

Australian government funding

In data aggregated by the Department of Education from university financial reports for 2019, it was a strong year financially for the ANU and to a lesser extent Griffith University. All other universities generated a surplus, although it was a very modest one at Macquarie University.

The three Queensland universities reported in The Guardian’s analysis (USQ, Griffith and JCU) all had the highest reliance on government funding in 2019, and with its extensive private medial facilities, Macquaire University, had the lowest.

By 2022 as Australia emerged from the pandemic, only two of the seven universities reported a surplus (Wollongong and Canberra universities). And the University of Wollongong had also increased its level of non-government revenues, to now have the lowest reliance on government funding.

The Department of Education has not yet compiled data from the 2023 financial reports of the universities, so I have sourced the following directly from each university’s annual report. It shows a very healthy net result for the ANU ($135m) in 2023 but losses at all of the other universities.

A reduction in government funding as a proportion of university revenue is also apparent for all of these universities.

Actual declines in the level of government funding received between 2022 and 2023 were only experienced by JCU and Griffith, but as universities followed government directives to commercialise their research and as they welcomed back international students – most saw their non-government revenues increase and conversely their share of income received from the Australian government declined proportionately.

International student fee revenue

International student revenue is an important income stream for most publicly-funded universities. Pre-pandemic these universities earned between 10% and 30% of their revenue from international student fees.

In 2022 – reflecting the impact of the pandemic on international student numbers at many, but not all, publicly funded universities – income earned from international students had fallen, and the proportion of overall university revenues earned from international student fees had also dropped.

In 2023 revenue from international student fees declined noticeably at the ANU (-$47m) and although there was also an apparent decline for Macquarie University some of that is due to differential treatment of scholarships for international students in the university’s financial accounts in 2022 and 2023.

All other universities experienced growth in their international student fee revenue between 2022 and 2023 – with James Cook University (+$101m) and the University of Wollongong (+$80m) having the highest increases. Interestingly both have significant offshore operations (so not all of their student fee revenue is earned from international students studying in Australia).

As the university sector looks to a financially challenging future and contemplates greater scrutiny of its governance practices and the pay of senior leaders, particularly Vice Chancellors, it is worth questioning if the previous assurances from the University Chancellors Council that universities are like businesses and need to be run that way (and therefore did not need greater diversity and representation on their governing councils) have proven prescient or not?

I would argue that publicly funded universities are not businesses and they should be run like high functioning, responsive public service agencies (think public hospitals and school systems) – with greater certainty in the broader policy landscape and in their funding.

I wonder what shareholders would think of an industry where the top businesses are described as having “feasted” while others “have withered”?

Replace “shareholders” with “students and the broader community” and I suspect they would have legitimate questions about the financial management and budget planning of universities, and they would probably also have a lot of questions about the policy, funding and regulatory decisions of governments on both sides …?