Education Minister Simon Birmingham warns universities they must focus on efficiency and value for money

INSIGHTS & RESOURCES

Education Minister Simon Birmingham warns universities they must focus on efficiency and value for money

AUSTRALIAN FINANCIAL REVIEW
by Tim Dodd
28 August 2017

Key Takeaways:

  1. Education Minister Simon Birmingham warns universities to focus on efficiency and value for money or risk losing public trust.
  2. Research by Keith Houghton shows universities have room to boost productivity and offset the proposed $1.2 billion budget cut.
  3. Birmingham highlights fiscal challenges, such as increased funding, mounting student debt, and rising costs.
  4. Universities Australia claims Australian universities are efficient, but further productivity gains are possible.
  5. The government’s budget cut and fee hike proposals may face opposition in the Senate, while Navitas CEO Rod Jones believes universities can improve productivity.

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Full Article:

“Federal Education Minister Simon Birmingham has issued a tough warning to universities to focus on efficiency and value for money or risk losing public trust and goodwill.

He said he welcomed new research from former Australian National University economics and business dean Keith Houghton, which showed that universities had room to boost productivity to more than recoup the $1.2 billion efficiency dividend which the government wants to cut from universities in the next four years.

Senator Birmingham said Dr Houghton’s findings, reported exclusively in The Australian Financial Review on Monday, showed that universities could “succeed within our reforms which propose a slightly lower rate of growth in taxpayer funding for just a few years”.

“I welcome this ground-breaking measurement and it should prompt universities to reflect on their operations,” he said.

Dr Houghton, now retired from the ANU and a Principal of Research Coaching Australia, found that universities vary widely in their efficiency based on a productivity measure which looks at the volume and cost of both their major outputs, teaching and research.

He said that if all universities could reach at least 85 per cent of the productivity level attained by Australia’s most efficient universities, the university system would save well over $500 million a year, or in excess of $2 billion over four years. Furthermore, an additional productivity increase of 2 per cent a year would save an another $500 million annually.

Senator Birmingham, who is expected to address university efficiency in his speech to the Australian Financial Review Higher Education Summit in Sydney on Wednesday, said that universities needed to acknowledge the reality facing Australia.

“Taxpayers are footing the bill for around $50 billion of student debt with a quarter not expected to be repaid, funding for universities has increased at twice the rate of the economy and per student revenue has jumped by 15 per cent while costs have only grown by 9.5 per cent,” he said.

However, the government’s budget cut to universities, which would shave 4.9 per cent from their teaching subsidies, is likely to stall in the Senate, along with the proposal to increase student fees by 7.5 per cent.

Universities Australia chief executive Belinda Robinson, who represents universities, said that Australian universities were “among the most efficient in the world”.

Dr Houghton’s research also backs her view, showing that Australian universities are more efficient in their teaching than those in the US and the UK. But Dr Houghton also sees room for further major efficiency gains.

Asked whether universities could improve productivity, Navitas CEO Rod Jones, who works in partnership with many universities to deliver courses, said there was “no question” that they could.

There is growing anticipation that the federal government’s response to the Universities Accord review’s final report will come soon. Given this and the fact that the budget is less than a month away, it is timely to review one of the final report’s key insights.

Recently released analysis finds that one large Group of Eight university outperformed other public universities in its research and education productivity outcomes during the pandemic.

The joint and common cost problem arises where there are two or more outputs that arise from costs that are shared in the production of these outputs. In many situations, the ability to assign costs to these two or more outputs is not complex. But there are instances where it is highly complex. In these situations, there is a need to use advanced analytics to provide a valid and reliable estimate of costs.

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