Terri Butler on Higher Education

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Shadow Assistant Minister for Universities, Terri Butler, writes about the importance of higher education and the unfair policies of Prime Minister Turnbull.

Dropping the higher education repayment threshold down to an income of $42,000, and indexing the threshold to CPI instead of average weekly earnings, makes no conceptual sense. It is a departure from the spirit of a scheme created to require students to make an additional contribution, above that made by other citizens, in recognition of the private benefit of university education, while acknowledging that it is, first and foremost, a public benefit.

Higher education has a public benefit first because our society and economy benefit from it. We get a workforce comprising a proportion of people who are equipped with the skills and knowledge derived from a university education. We derive the benefits of creating strong academic institutions, and of attracting smart people to academic life. And as a nation we get to have, amongst our citizenry, people who have had formal training in thinking critically and creatively. 

Valuing higher education does not imply disrespect towards other means of getting knowledge or experience. Higher education is not the only source of these types of skills, or of knowledge. Its importance, though, is undeniable.

Higher education is of private benefit, too. Some of the private benefit is unquantifiable: in some ways, learning is priceless, not least because of the pleasure it brings. In other ways, though, the private benefit is more material. Unemployment is persistently lower amongst people with a bachelor’s degree than those without. And people with degrees tend to be in higher paying jobs. Though there can be different assessments of the proportion of the private benefit of higher education compared with the proportion of public benefit, most would acknowledge that people who get a university education tend to reap material rewards as a consequence.

These are general statements about graduates as a population. Of course, though, there are outliers. Even in good economic times, there have always been some graduates and former students who have reaped very little in the way of quantifiable private benefit from higher education. Perhaps they have struggled to get a good job because they took a degree in a discipline in which there was a glut of graduates. Perhaps they’ve been able to get only part-time or casual work. Maybe they have been out of the workforce because of care obligations, for kids, relatives with a disability, or elderly parents, and have been off the promotion track. Some have decided, out of a sense of vocation and a desire to serve their community, to work in the not-for-profit sector, with earnings much less than could be obtained in the private sector.

Income contingent loans are a good way to ensure that those who reap a substantial private benefit from higher education make an additional private contribution to its continuation. Obviously in a progressive income taxation system, people automatically contribute more as their incomes increase, but income contingent loans provide an additional means of contribution, in recognition of the connection between higher education and higher incomes.

These contributions, though, should be conceptualised as liabilities that do not crystallise unless and until the student is actually reaping significant private benefits. The contribution is treated like the repayment of a loan, but only if the student reaches a certain income. If the student is paid poorly, then the obligation doesn’t arise and the loan doesn’t become payable.

Extracting payments from people who don’t reap a material reward from their university degree is just imposing an additional tax, without the policy justification that underpinned HECS and still underpins, or should underpin, the “Higher Education Loans Program”. It’s requiring them to make a contribution in recognition of something they haven’t yet got, and may never get - a significant private benefit.

So the Turnbull government’s plan to drop the lowest “repayment” threshold down to $42,000 ignores the policy that underpins higher education contributions. It’s an amount well below average full-time earnings. It’s not the income of someone who is cashing in on their university degree.

It’s not even a contribution that will go towards increasing the overall funding of higher education: the government is cutting funding to universities by a commensurate amount, and then some. Universities are taking a 2.8% funding cut on average - a cut of $3.8 billion over the forward estimates.

The decrease of the threshold will mean more than 180,000 additional people, who otherwise would not have made enough money to be liable to do so, will now be required to make payments to the government.

As University of Sydney Vice-Chancellor Michael Spence has pointed out, the reduction of the threshold is really a new tax. And as the National Foundation for Australian Women as pointed out, the burden falls disproportionately on women - and the policy has the effect, when  combined with other Turnbull government measures, of giving rise to very high effective marginal tax rates. 

Just as dropping to such a low threshold is against the policy that underpins higher education contributions, so is indexing the thresholds against CPI rather than average weekly earnings. This Turnbull government change erodes the “income contingent” nature of the income contingent loans. If the threshold exists so that people only start making payments if they reach a certain income, then why increase that threshold according to changes in prices rather than changes in incomes?  The government’s own publicity material about this policy change makes clear that the only rationale for it is a fiscal one - to get in more money. But why should the diminution of the income-contingency of students’ contributions to higher education be the means by which revenue is increased? That seems to show insufficient regard to the nature of higher education in the first place. It’s not a consumer good; it’s a public benefit that contributes to our nation’s civic, economic and social life.


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