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Budget Preview 2011

With less than two months to the Budget, Tertiary Update takes an extended look at what we can expect from the 19 May Budget and what we might need to see to ensure that our excellent tertiary education system is able to flourish.

In this week's Tertiary Update:

1. Previous budgets
2. Earthquakes and austerity
3. Some big numbers
4. Specific issues:
   • Trades training
   • Student loans
   • The Tertiary Education Strategy
   • Tertiary education’s role in the recession
5. Other news

Previous budgets

For tertiary education the three defining features of the current government’s previous budgets have been::

• cuts around the edges of funding to programmes that the government has not valued;
• a commitment to the previous government’s capped EFTS policy leading to a failure to fund the number of people who would like to study; and
• the introduction of greater amounts of performance-based funding.

Inevitably, pressure has seeped from government funding cuts through into employment negotiations, with sustained attempts to diminish pay and conditions for those working in the sector.

After two and half years in office the government has put in place most of its stated policy framework for the tertiary education sector, so there are unlikely to be significant policy-driven changes coming from this year's budget.

However, there could well be further capping of funding compared to the number of potential students. The government is preparing New Zealanders for an austere budget, but it has several times indicated that it will spare the Vote Education budget line from the worst of the cuts.

Earthquakes and austerity

Just before the second major Christchurch earthquake the minister of finance, Bill English said:

"The Budget this year will reduce new operating spending to around $800 million to $900 million a year, from the current allowance of $1.1 billion. We will prioritise new spending on health and education and set a path to meaningful surplus in 2014/15 – a year earlier than forecast."

One month and one major earthquake later, the Prime Minister John Key said the government was abandoning plans to spend an extra $800 million in this year's Budget because of the cost of the Christchurch earthquake.

Mr Key said the government still expected to increase funding to health and education but warned that money would now have to come from cuts in other areas, rather than through new funding - and the increases would not be as big as earlier indicated.

The Prime Minister has effectively said there are now two pools of money for the budget. One, education and health, will get between $600-800 million in new spending. The other, everything else, will suffer $600-800 million of cuts to pay for new spending in health and education.

Some big numbers

So what does $600-800 million of new spending mean for the health and education vote appropriations? The most recent Budget Economic and Fiscal Update (BEFU) released in December last year shows education spending increasing from an actual expenditure in 2009 of $11.5 billion to a forecast $11.8 billion in 2010, up $324 million.

BEFU forecasts spending to grow a further $200 million this year and then remain relatively stagnant - at about $12 billion - until at least 2014.

Currently the government spends about $4.1 billion of that $12 billion on tertiary education. Most of that remaining $8 billion goes to compulsory education with early childhood education receiving much of the remainder. The budgeted increase for the entire education budget of 2.8 percent roughly keeps pace with inflation if GST is not accounted for.

The health budget is also roughly $12 billion and BEFU also forecasts that it increased in both 2010 (by about $770 million) and 2011 (by about $900 million).

However, the situation is not as good for tertiary education. BEFU currently forecasts that tertiary education funding will fall every year between 2009 and 2014. Most of this reduction is due to a tightening in eligibility for student loans, but it also includes falls in funding for tuition and other tertiary education spending. This BEFU is predicated on student numbers remaining at record high numbers, but not growing, due to the government’s EFTS cap funding policy.

Indeed, in cabinet papers relating to last year’s budget tertiary education minister Steven Joyce noted:

"The recession has increased demand for tertiary education in 2009 and 2010, and the increased demand is forecast to remain high in 2011 and beyond. At the same time the current funded baseline of places at ITPs and universities decreases from its current level in 2011."

This was in contrast to public statements that high student numbers were a temporary circumstance that the sector simply needs to weather.

Therefore, the current BEFU see health and education receiving over a billion dollars of new spending this year and next and yet both sectors cope with inflation. It also forecasts that tertiary education, which sits within the larger education budget, will still face significant budget cuts.

Now the government is suggesting that new spending for health and education will be 20-40 percent less than forecast by Treasury, but that student numbers will continue to grow.

Specific issues

Trades training

Following the earthquakes there has been significant focus on whether there are enough qualified trades people to help rebuild Christchurch. Ironically, up until the earthquake the government seemed be waging a vendetta against trades training, with large cuts to industry training and polytechnics forcing many trades departments to make trades tutors redundant and to increase class sizes.

Earlier this week though Mr Joyce announced that there would be an increased focus on trades at polytechnics to cope with higher levels of demand during the rebuild of quake-stricken Christchurch.

The minister told NZPA the boost would involve re-prioritising courses toward the trades and an increase in funding. Expect the minister to provide greater detail about what this new funding and focus might mean in the weeks leading up to the Budget. If it is a feel good measure to placate concerns about how quickly Christchurch can be rebuilt, it will be a one-off targeted payment to mostly Canterbury based trades training providers. If it is genuine attempt to address concerns about a long standing skills shortage it will be an-going nationwide funding package that looks to strengthen existing capacity in polytechnics and industry training providers.

Student loans

The government has repeatedly said that the current interest-free student loans policy is fiscally unsustainable, should not have been introduced, and is preventing the government from being able to balance the books as it would like. It has however, also repeatedly affirmed its pre-election promise that it will not remove interest-free student loans. Some in the tertiary sector, such as Universities NZ have lobbied the government to redirect funding for student loans and support spending going tertiary education performance funding.

There are two useful points to make here. The first is that student loans are not directly a tertiary education funding issue – they are actually a tax issue. Student loans operate as a tax on education, and, because of the way they are designed, are a regressive tax that means the poorest students and graduates pay the most tax on their education.

The second point is the government is stuck with interest-free student loans, but it is likely to use the Budget to propose further changes to reduce eligibility to those loans. The danger for those working in tertiary education is that if any changes to eligibility are too restrictivestringent it may increase either the perception, or the reality that tertiary education is unaffordable or unattainable.

Expect to see the government sell changes to the public in much the same way as the recent welfare reform debate, with students portrayed as ‘bludgers’, and funding cuts described as 'closing loop-holes'.

The Tertiary Education Strategy

Last year the government released its  Tertiary Education Strategy 2010-2015 which guides its tertiary education policy until 2015. The Ministry of Education largely developed this document under former tertiary education minister Anne Tolley, and subsequently it has the look of a document that was developed mostly by ministry officials without the close fiscal oversight that one might expect from the current minister.

Thus, it lists among its key priorities increasing the number of young people (aged under 25) achieving qualifications at levels four and above, particularly degrees, increasing the number of Māori and Pasifika students enjoying success at higher levels, improving the educational and financial performance of providers and strengthening research outcomes.

Worryingly for the government it would struggle to show how its current funding and policy choices are meeting any of those goals. Last year roughly 9000 would-be students missed study places due to the cap on EFTS. Changes to funding models mean that pathways courses to get students who would otherwise not enter tertiary education into study closed in favour of funding for postgraduate study for students who have already succeeded. Polytechnics, collectively down about $50 million in funding, are cutting staff and raising class sizes to stay financially viable. And MāoriMāori and Pasifika students are facing the brunt of decisions that are aimed at making tertiary education more costly and exclusive.

The government will face an interesting test later in the year when the Ministry of Education measures tertiary education against the priorities the government set in its strategy. The government may need at least a few small examples of new spending, particularly around access for students that would otherwise miss the opportunity to study in this year's Budget to demonstrate its commitment to its own strategy.

Tertiary education’s role in the recession

Good tertiary education is not just about jobs, training and the economy. It serves a broader social purposes that strengthens our communities, our democracy and our health. But currently it is no surprise that the economy is a dominant topic for many people as the Budget approaches.

TEU has repeatedly argued that tertiary education has a crucial role to play in supporting New Zealand to climb out of the global financial crisis. New Zealand has a world-class tertiary education system with world-class people working in it. With the right support our tertiary education system can give people who would otherwise miss out on new skills and qualifications, it can kick-start and change the direction of our economy, and it provides top-quality research that shows a way forward.

Many other countries, including Australia see increased funding and access to their tertiary education system as an investment rather than a cost. New Zealand can also make this choice, but the current ideology around funding - of austerity and cuts - will not make it easy.

Other news

A survey released by Statistics New Zealand, in association with the Ministry of Science and Innovation (MSI), shows that universities undertook $802 million worth of research and development (R&D) in 2010, a third of the nation’s total R&D spend. The biennial Research and Development Survey measures the level of R&D activity by the private sector, government departments and agencies, and universities. Since the last survey in 2008, university R&D increased by 23% from $653 million to $802. New Zealand’s total R&D expenditure increased 13% during this period - Universities NZ

As Japan struggles to contain radiation leaking from a damaged nuclear-power plant, some universities have postponed the start of their academic year, while administrators worry about the long-term impact of the disaster on recruitment of foreign students and faculty members - Chronicle of Higher Education

A swindle involving a Perth university employee charging Indian students thousands of dollars for fake English test results stretched across the country, with one student flying from Queensland to obtain dodgy marks - The Australian

Canadian higher education leaders on Tuesday praised their federal government's budget proposal for the upcoming fiscal year, which would significantly increase spending on higher education and research. The 2011 budget would spend tens of millions of new dollars to create research chairs and invest in brain research, and provide additional funds for student financial aid and study abroad. "[T]oday’s budgetary commitments to higher education are in line with a growing consensus among Canadians that Canada’s research universities play an integral role in advancing our economy and improving the social and economic well-being of all Canadians,” said Stephen Toope, president of the University of British Columbia - Inside Higher Ed

Private colleges in Swaziland have been given until the end of May to register with the ministry of education and training or face closure. Minister Wilson Ntshangase announced that the ministry has decided to register all private tertiary institutions in the country - Swazi Observer

Largely unaccredited US universities that purport to give students "career training" are charging upwards of US3000 but the students working at Wal-Mart and 7-Eleven - Chronicle of Higher Education

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TEU Tertiary Update is published weekly on Thursdays and distributed freely to members of the Tertiary Education Union and others. You can subscribe to Tertiary Update by emailor feed reader. Back issues are available on the TEU website. Direct inquiries should be made to Stephen Day.

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