Inflation threatens ‘killer year’ for Australian universities

Australian universities could be forced to shed more staff unless next month’s federal budget sets aside enough money for teaching grants to be adequately indexed, a policy expert has warned.

Australian National University analyst Andrew Norton said the 9 May budget was shaping up as a crunch point for many institutions, as soaring inflation fuelled pay rise demands from staff.

While students’ living allowances, tuition fee debts and loan repayment arrangements are indexed roughly in line with current inflation rates, that is not the case for universities’ teaching income. Both student contributions and government teaching subsidies are indexed using inflation data that is roughly 12 months out of date.

This was not an issue before the coronavirus pandemic, when inflation hovered at about 2 or 3 per cent. But from late 2021 the rate began climbing steadily to almost 8 per cent.

Complicating matters further, teaching grants are not indexed at the aggregate level, with no automatic increase to each university’s funding envelope for subsidised places.

The former federal government vowed to change this as part of its 2020 Job-ready Graduates package, saying that funding envelopes would be indexed in line with the consumer price index.

But this promise was never enshrined in legislation. Instead, the government made allowances for inflation in its funding agreements with individual universities, based on error-prone CPI estimates made as much as three years in advance.

Under current arrangements, next year’s allowance may be little over one-quarter of what would be needed to keep pace with actual inflation.

Professor Norton said this was now a “big issue” for the sector, as it waited to see whether the budget included an extra allocation to cover the shortfall.

He said he was not optimistic about the prospects, with the government needing to constrain its spending and inclined to leave “the tough questions” for the Universities Accord panel.

This would put universities in a very difficult position as they faced demands for higher wages. “I expect another round of staff cuts will be needed, at least for the universities without major international student fee revenue," Professor Norton said.

“They’ll do what they’ve already been doing in some cases, which is get rid of staff.”

The National Tertiary Education Union is seeking pay rises of 15 per cent over three years, and has come to terms with six universities offering salary increases in that region.

Universities’ expenses were already rising irrespective of industrial negotiations. Institutional accounts from 2022, which have so far been published by 10 universities, show that overall costs rose at all but one of them.

Salaries rose at six of the 10 institutions, typically by about 5 per cent. “Other expenses” – a catch-all category encompassing things like travel, telecommunications, advertising, utilities and insurance – rose at eight of the 10 institutions, often by more than 10 per cent.

Professor Norton said universities would struggle even more if their funding envelopes failed to keep pace with inflation. They would also be able to accommodate fewer students.

This might not matter in the short term, with student demand subdued in a strong labour market. But in the longer term, it could undermine progress towards the University Accord’s newly framed participation targets. 

john.ross@timeshighereducation.com