Government urged to fund Varsities in ‘real terms’

Professor Rod Carr

It is time for this Government to play its part in helping ensure that the University sector remains a viable and successful part of this country’s education and research system.

Ensuring sufficient funding to maintain a viable, internationally competitive University sector is key to this.

This year, the Student Achievement Component (SAC) funding went up 1.6% (originally 0% in the Budget) and Domestic Student Tuition Fees rose by 2%. This was helpful, but really just means that the sector will slip backwards more slowly than would otherwise be the case.

Spiralling costs

To put the increases in context, sector operating costs rose 15.5% between 2013 and 2017, despite initiatives to manage down costs, such as widely publicised restructurings and asset disposals. The single largest component of this increase was salaries, at 58% of sector costs. These rose 13.5% between 2013 and 2017—exactly in line with wider New Zealand increases in earnings of 13.5% over the same period.

By contrast, CPI rose only 5.15% between 2013 and 2017—but CPI does not pick up costs such as personnel, information technology, building maintenance, insurance or construction. Simply increasing University sector funding by CPI won’t go nearly far enough in helping the sector cover its costs.

Funding and control

Overall, 78% of New Zealand University funding comes either directly from the Government (SAC funding, PBRF and other research funding), or is subject to Government control (increases in domestic student fees).

The financial health of universities, and their ability to meet the needs of students and the community, is thus significantly in Government hands.

That responsibility has been abrogated for the last 20 years by successive governments restricting student-related funding increases to CPI at best.

Most of the University sector’s other revenue is generally tagged to specific purposes.

For example, most research funding is tagged to specific research activities and little, if any of it, can be used to offset increases in general overhead costs.

If part or all of the funds are not used for the specific purpose, they are either not drawn down or the unused component must be returned.

Influencing factors

New Zealand universities depend greatly, therefore, on some combination of the following to ensure they can cover costs: 1. Price/rate increases in tuition fee rates charged to domestic and international students; SAC funding rates per student; Performance Based Research Fund (PBRF) funding levels 2. Volume increases, through growth in numbers of domestic and international students.

Demographic factors mean that domestic student numbers are projected, at best, to remain flat until 2023.

International student numbers have been increasing around 3% per annum for the past few years. Work across the sector and with Government means that we are cautiously optimistic that similar growth should be achievable for the next few years.

International student fees

We believe, however, that international student fees are already at about the maximum that the market will bear. Any increases to these are likely to be generally in line with inflation or they may even fall a little as the market becomes more competitive.

We are also highly dependent, possibly too much so, on the Chinese market at a time when China is making enormous investments in its own University sector.

New Zealand’s universities therefore rely heavily on Government increasing rates for domestic student fees, SAC funding rates and overall funding for PBRF.

Greatest threat

The greatest threat to the sector is now potentially that of neglect by the Government.

Universities still generate surpluses.

We manage our balance sheets well.

We have strong governance and management.

Because of factors such as these, we think there is a risk that the Government will neglect the pressing challenges of universities while focusing new investment primarily on the parts of the tertiary system that have already become problematic.

To ensure that New Zealand continues to benefit from a strong effective University sector and to prevent that sector becoming a financial burden in future, we need this Government to commit to maintaining sector funding in real terms.

Raising revenue

We intend to do our part by continuing to seek efficiencies, savings and revenue where possible—but we can’t do it by ourselves.

If the Government committed to simply increasing student fees, tuition subsidies (SAC funding) and core research funding (PBRF) annually by a percentage that better matches the real cost pressures faced by universities, that would be enough.

Universities could cover additional cost increases through efficiencies and additional income in other areas.

Varsities at risk

Without this, universities run the real risk of hitting a tipping point in the next few years—where declining rankings lead to a flight in key staff and a fall in student numbers.

This would be nearly impossible to recover from and would see the University sector join the Institutes of Technology and Polytechnic (ITP) sector in requiring large Government bail-outs and interventions.

Professor Rod Carr is Vice-Chancellor, University of Canterbury.

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