Mark Warburton Branch Manager Funding and Student Support Branch Higher Education Group

1. PRESENTATION TO CONFERENCE ON FINANCIAL REPORTING IN HIGHER EDUCATION 2011Sydney, 14 November 2011 Mark Warburton Branch Manager Funding and Student Support Branch Higher Education Group

2. Some observations on the financial outlook • for • Australian universities

3. Overview • Part 1: Higher education policy environment and Govt funding • An interlude with the OECD • Part 2: University financial performance in 2010

4. Transforming Australia’s Higher Education System • Announced in 2009-10 Budget • 40% of 25-34 year olds with Bachelor degree by 2025 (Attainment target) • 20% of undergraduate students to be from low SES backgrounds by 2020

5. Initiatives in the 2009-10 Budget • Demand Driven Funding System • Improved indexation arrangements • Infrastructure & research funding • Support for low SES participation • Performance based funding

6. Demand driven funding (i) • Transitional arrangements in 2010 and 2011 – over enrolment funding up to 10% • From 2012, all student places in bachelor courses fully funded at public universities • Allocated student places remain for postgraduate, medical, below bachelor degree courses and for private providers

7. Demand driven funding (ii) • Growth in undergraduate places from 2008 to 2012 to be around 20% • In 2011, 488,000 undergraduate student places funded • Total additional funding of $3.97b over 2010-2015 - most from 2012

8. Total C’wealth supported places

9. Improved indexation • Transitional arrangements in 2011 • New indexation of student contributions amounts • Conditional Facilitation funding = new indexation of teaching and learning grants • Fully implemented in 2012

10. Previous indexation arrangement • HEIF = (75% x SNA) + (25% x CPI) • 75% based on Safety Net Adjustment (SNA) • 25% based on Consumer Price Index (CPI)

11. New indexation arrangement • HEGI=[75% x (90%PSTS)] +(25% x CPI) • 75% based on 90% of annual percentage increase in Professional, Scientific and Technical Services (PSTS) labour price index • 25% based on Consumer Price Index

12. Indexation - longer term benefits • $3.15 billion in additional revenue from 2011-2015 • Only $164 million of this overlaps with the $3.97 billion cost of demand driven system • For 2012, the indexation factor is 3.8%

13. Indexation factors since 1995

14. Infrastructure funding (i) • In 2008, $500 million was provided to universities as Better Universities Renewal Funding. • Govt is spending $4.55 billion from the Education Investment Fund (EIF) on higher education, VET and research infrastructure from 2009.

15. Infrastructure funding (ii) • Over $700 million in other higher education funding is being spent from 2008 on: • capital development projects; and • diversity and structural adjustment projects (not all is infrastructure).

16. Infrastructure/adjustment spending • Most of above funds already committed, including $500m EIF Regional Priorities Round which is now underway. • To end of 2010, less than 50 per cent of this funding had been paid to the sector • The remainder is being paid during 2011 and subsequent years.

17. Other funding also increasing • Support for low SES participation (HEPPP) increasing from $56m in 2010 to around $180m from 2012. • Regional loading doubles from 2012 • Resumption of fees for student services and amenities from 2012

18. Higher Education Expenditure

19. Part 1 in summary • General growth in the sector & the implementation of new initiatives will present opportunities and challenges • BUT • Change is already well underway; and • It is accompanied by increased Government investment continuing beyond 2010

20. Interlude on OECD comparisons (i) • There are often claims that Australia does not resource higher education as much as other countries • In 2008, Australia’s total expenditure on tertiary institutions was 1.5% of GDP, the same as the OECD country mean.

21. OECD comparison OECD: Expenditure on tertiary institutions as a percentage of GDP, by source of fund (2008)

22. Interlude on OECD comparisons (ii) • Aust’s private expenditure on tertiary education is higher than OECD average. • Loans to students paid directly to universities by the Government are regarded as private expenditure above. • Ultimately around one third of the value of student loans are paid by Govt – but this is not recognised above.

23. Part B – 2010 university finances • 2010 publication just released • Available on the DEEWR website (go to ‘Higher Education’ tab & then ‘Publications’) • Derived from individual university audited financial statements

24. Cautionary notes • Sectoral analysis hides the different situations of individual universities • Each university responsible for its own financial management • All indicators have limitations but they are a useful tool to inform judgements

25. Total revenue • Continued to grow strongly. • Total revenue increased from 19.9 billion in 2009 to $21.5 billion in 2010 – up 8.2 per cent • This is ‘higher education’ only, not ‘total institution’.

26. Total Revenue 2002-2010

27. Revenue shares (total inst.) • Australian Govt grants share stable – 42.2% in 2009 to 42.3% in 2010 • HECS-HELP share increased from 11.4% in 2009 to 11.7% in 2010 • Biggest increase was fees & charges - 22.8% in 2009 to 23.3% in 2010.

28. Revenue Sources 2010 $22 billion in 2010

29. Overseas Student Fees • Increased from $3.4 billion in 2009 to $3.9 billion in 2010 - up 13% • Share of total revenue up to 17.5% from 16.7%, with some universities highly reliant on this revenue source • Yet to see 2011 - response to Knight Review will help attract students

30. OS Student Fees 2002-2010

31. Operating Result • In 2010, operating result increased from $1.8 billion in 2009 to $1.95 billion in 2010 – up 8.1% • Capital grants influence the result • But full impact of demand driven funding & indexation are not yet in the result

32. Operating Result 2002-2010

33. Net Assets • Increased from $35.1 billion to $37.6 billion • An increase of 7.1%

34. Net Assets 2002-2010

35. Debt to equity ratio • Remains very modest • Increased by 0.01 from 0.32 to 0.33 • For the record, external borrowings increased from $1.6 in 2009 to $1.9 billion in 2010 (up 22%).

36. Debt to Equity 2002-2010

37. Concluding observations on university finances (i) • 2010 was a good year. Available evidence is that 2011 and 2012 also will be good • Many of the benefits of recent government policies are yet to flow through to university finances • The environment for attracting international students has been improved

38. Concluding observations on university finances (ii) • Universities concerned about rapid growth have already experienced a lot • There is still infrastructure funding in the pipeline • There is potential to improve utilisation of existing assets and to increase borrowings

39. Above all else • There is nothing to replace good financial management within your own university • That is something the Australian Government cannot give you • Hopefully this conference will help you with the task!

40. THANK YOU • mark.warburton@deewr.gov.au