August 21, 2023
Forcing higher education to tax itself to fund Australia’s advanced research is a nonsensical non-starter of an idea.
Vicki Thomson – Australian Financial Review – August 21 2023
In what world does a not-for-profit sector propose a new tax on itself?
The great bulk of research is carried out by G8 universities.
Back when the newly elected Albanese government announced a review of higher education, the “universities accord” – it was welcomed, especially by the university sector, as a once-in-a-generation opportunity to create a modern and seamless tertiary sector, fit for purpose to meet the nation’s future needs.
Weighty (some bold) submissions were drafted, numerous workshops held. This led to the release of the accord interim report last month. Certainly, many of the report’s ideas have merit, but it was unfathomable to find that the only revenue measure proposed – a tax on international fee revenue – had the capacity to undermine one of Australia’s greatest export success stories and to put Australia’s higher education sector back decades.
In a month of soccer analogies, a game-changing own goal.
This tax, which would simply result in shuffling money around between ourselves back and forth from institution to institution – has been broadly shunned by experts. As a retired head of DFAT and now University of Queensland chancellor Peter Varghese said, such a proposal would essentially subcontract the investment in research to international students.
In other words, Australia would outsource the future of our nation to international market volatilities.
This tax, on conservative estimates, would lead to a decline of almost 30,000 international students, a $770 million hit to our national export income and the loss of about 2800 jobs in the economy.
This might sound like hyperbole. Think again.
Productivity needs all the help it can get. This tax goes in the opposite direction.
Australia weathered the challenges of the COVID pandemic because of the research expertise we had in our universities. This sovereign capability would be put at risk by a tax which would see our leading universities fall in world rankings and global competitiveness. Research investment is critical. It delivers substantial economy-wide returns, drives economic growth, and the productivity that improves the lives of all Australians. Productivity needs all the help it can get. This tax goes in the opposite direction.
The government recognises this in restating its commitment to raising Australia’s current research spending from 1.7 per cent to 3 per cent of GDP. Its share has been in decline since the mid-1990s. And business continues to move away from funding research. Between 2008 and 2020 business research expenditure as a share of total national spending fell 10 percentage points to 53 per cent.
In contrast, higher education research spending has risen to 0.61 per cent – significantly higher than the OECD average of 0.44 per cent.
So why then, would we even consider for a moment replacing that nonsensical idea to tax international students with yet another that imposes a so-called “efficiency dividend” on all Australian universities?
The last time such a measure was proposed, in 2017 by the then Coalition government, we railed against it.
Neither of these ideas actually address the underlying problem. We have a distorted funding model whereby the national university research effort – 70 per cent of which occurs in Go8 universities – is underwritten by international fee income. This is neither acceptable nor sustainable.
These “own goal” proposals would hit deeper than research investment. They would remove the limited flexibility universities do have to fund the very things identified, and rightly so, as priorities in the interim report. Think funding support for equity students, and programs such as internships and lifetime learning courses.
These proposals also undermine the longstanding principle of not taxing charities in the conduct of their charitable work. Our universities are not for profit. We reinvest every single dollar back into delivering quality education and research.
Perhaps a better idea would be to consider why we have been subject to a trend of continued disinvestment in higher education by successive governments. Our universities are complex. Different universities have different needs. We need a funding model that recognises that. We need to grow the pie – not redistribute it.
Vicki Thomson is chief executive of the Group of Eight universities.