New Zealand funding model ‘not fit for purpose’

More fundamental reforms are needed if New Zealand’s university sector is to remain sustainable, said the head of one of the country’s most cash-strapped institutions in the wake of a government bailout.

The extra NZ$128 million (£62 million) announced last month will fund a 4 per cent boost to degree-level teaching subsidies in 2024 and 2025, on top of the 5 per cent increase announced in the May budget. Ministers intervened after 2022 financial accounts released by seven of the eight universities revealed deficits at five of them, with more than 700 jobs now at risk across the sector.

The government has committed to a review of higher education funding, with its scope and methodology yet to be determined.

Nic Smith, vice-chancellor of Victoria University of Wellington (VUW), said that the bailout had elevated the sector in the national psyche.

“We are now having a national debate around the importance of universities, which for so long has not been the case,” he said. “There is also an acknowledgement that the current system is not serving the purposes of the country, let alone individual institutions.”

Professor Smith said that the forthcoming review should examine the quantum of funding, which had been falling in real terms for more than a decade.

It should, he said, also reassess the “bums-on-seats” model of resource allocation, which meant that research funding largely depended on student demand and incentivised universities to compete in the same subjects and places – and to cut the same programmes when money became scarce.

“The capability of universities takes so much longer to cultivate and build up than take away, [operating on] timescales that transcend economic cycles or fashions in student demand,” Professor Smith said.

“You want universities to be strong and stable in the long term. If they can’t ride out bad periods because they don’t have enough buffer, [they incur] disproportionate damage during the downturns.”

Sector leaders say the declining real value of tuition subsidies, student loans and research allocations – which collectively constitute 77 per cent of university funding – has been exacerbated by a lack of incentives for institutions to cooperate. VUW’s proposal for a collaborative language teaching arrangement with the University of Otago, which faces similar financial challenges, failed to win support from the Tertiary Education Commission.

Professor Smith said it could be cheaper overall to teach some subjects by funding “centres of excellence” that retained specialist expertise and taught other universities’ students remotely. But that would require additional funding to cover the host institution’s extra costs. “The current system has no capacity to do that,” he said.

Other rules, including limits on investing and a “debt ceiling” at each university, further restrict administrators’ ability to ride out short-term funding squeezes. Protracted border closures damaged international enrolments more in New Zealand than in competitor countries, and the lockdowns might also have exacerbated the slump in domestic demand.

Physicist Nicola Gaston blamed the slump partly on “sub-optimal student experiences during the pandemic”. She said “government policy and inaction” had left vice-chancellors little room to manoeuvre.

Universities New Zealand chief executive Chris Whelan said the forthcoming review would address the “same questions” as Australia’s Universities Accord. He said there was “general agreement” that the funding system was “probably no longer fit for purpose”.

“Government settings are always going to be sensibly conservative and a little risk-averse, to protect students and the value of their qualifications,” he said. “Some of those settings have been in place now for 20 or 30 years [and] are inhibiting the ability to deliver [models] of learning and teaching…that are common worldwide.”

john.ross@timeshighereducation.com