Kiwis try funding by lottery

When is a voucher not a voucher? When it is a tertiary education tuition allowance. That, at least, is according to New Zealand's University Students' Association in response to their government's changed funding arrangements.

In fact, the students are wrong. The new allowance, announced in the latest budget, is simply another way of describing the existing system, under which tertiary institutions are funded on a per capita basis for students enrolled.

The system is demand-driven. If students do not enrol, the institution gets no funding. The budget does, however, make a major change. In the past, the government would decide on a figure for each institution and would fund all enrolments up to that figure. If it were exceeded because more students enrolled, the institution would carry the cost.

Under the new arrangements, the government will fund every student who enrols. It is this notion that, by enrolling, every person can trigger individual funding, that has misled the students' association into branding the new allowance as a voucher. But the allowance lacks the essential feature of a voucher.

Under a voucher system, the government subsidy would in effect be paid into the pocket of the individual and spent by him or her when they decide on what university or college to attend. The transaction is between institution and student. The whole of the institution's responsibility is encompassed in that bargain between provider and customer.

The role of the university or polytechnic becomes as narrow, short-term and fragmented as is dictated by the market-place transactions it concludes with a myriad of individual customers. Under a voucher system, the wider role of the tertiary institution in society, the community's interest in tertiary education, counts for nothing.

The New Zealand tertiary tuition allowance avoids these pitfalls. As far as we know (and the detail has yet to be worked out), the allowance will be calculated for every enrolled student and will then be paid by way of a staggered block grant (albeit in instalments) to the institution. It can then decide how it wishes to spend the money. This preserves an essential element of academic independence and autonomy. It avoids the tyranny of the market-place in which the customer rules and feels able, on the grounds that he or she has paid, to demand a particular outcome. The institution is free to decide for itself how best to meet its obligations to the government and taxpayer. The students' confusion is, however, understandable.

The new system will greatly increase competition between institutions. Each will need to think hard about how to win the favour of potential student customers. Students could become much more demanding and the institutions much more customer-focused. Institutions that compete successfully will be funded for further expansion. Those that fail to attract students will see funding fall and their ability to compete compromised.

Institutions will behave much more like private-sector competitors. The talk will be of market share and product development. Mergers and takeovers will become the norm. The market will demand product differentiation and specialisation. Fees will be charged differentially for different offerings and in some cases will be set according to what the market will bear.

The system has some advantages. The commitment to fund every student who is able to meet the entry criteria and who wishes to enter tertiary education is extremely welcome on social and educational grounds. The participation rate should rise to internationally comparable levels.

The institutions will no longer have to carry a margin of unfunded students. They will no longer have to go through an arcane process of bidding each year for the number of students in a range of different cost categories that they think the government will agree to fund. Planning and budgeting should become much simpler. But before we throw our hats in the air, there are some hooks to watch out for.

The government has not exactly thrown away its control of its own spending. The budget for tertiary education is still strictly limited.

In the opening year of the new system, there is a welcome reversal of the annual cut we have experienced throughout the 1990s in funding per student and the government has budgeted for a 4 per cent rise in student numbers.

But if growth should exceed that level, funding per student will fall. And there are no guarantees for future years that the subsidy of about 75 per cent of tuition costs (with students paying the balance) will be maintained.

There could be more difficulties down the track. In another policy switch, the government has declared that private providers should be eligible for public funding and will be able to compete on level terms for the available funding per student. The 4 per cent growth rate for 1999 already looks to be not quite what it seems.

A white paper, following last year's green paper, is promised for August when a number of further issues will be addressed. These will include questions of governance, monitoring and accountability cost categories, and quality assurance. The agenda shows no sign of losing momentum. The students have one further gripe concerning the changes and this time it is fully justified. The new allowance, despite the perhaps deliberate similarity of terminology, has nothing to do with the universal allowance that the coalition government promised but shows no sign of delivering.

The universal allowance would mean that all students would receive an allowance equivalent to unemployment benefit. It is a costly promise but one whose fulfilment would do more for tertiary education than almost any other measure.The universities can live with the changes. The pressure to become more market-oriented will have to be watched, in case it gets out of hand. But for the time being, the growing competitive pressures are going to make life interesting.

Bryan Gould is vice-chancellor of the University of Waikato and chairman of the vice-chancellors' committee, New Zealand.