Universities Australia Pre-Budget Submission

Universities Australia Pre-Budget Submission 2014-15 January 2014

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Contents Executive summary... 2 Section 1: Government investment in universities... 3 Overview... 3 Current government investment in tertiary education... 4 The benefits of Government investment in university education... 7 Maintaining the current indexation arrangements... 9 Retain the demand driven system... 10 Increase investment in tertiary education over the long term... 10 Section 2: Government investment in university research... 11 Overview... 11 The benefits of publically funded research... 11 Restarting NCRIS investment... 12 Funding of Future Fellowships scheme... 13 Restoring SRE funding to 50 cents in a dollar... 14 Supporting international research collaboration... 16 Section 3: Removing the red tape burden on the university sector... 17 Universities Australia Pre-Budget Submission 2014-15 1

Executive summary Effective public investment in the university sector promotes Australia s national interest and is important to ensure Australia remains internationally competitive. Our universities are a critical part of the national economic infrastructure, they provide skilled graduates, underpin our research effort and are the cornerstone in delivering education services internationally. Over the last several years, Government has introduced several reforms to improve the policy settings and funding arrangements for Australian universities, in particular, the introduction of the demand driven system and improving the indexation method for the funding of student places. These reforms have led to increasing university participation rates and helped to arrest the historical decline in per student funding. Disappointingly, against the backdrop of a worsening budget position the previous Government initiated, in the 2012-13 MYEFO and in subsequent announcements, higher education budget savings worth $3.8 billion. The Government has subsequently reviewed the measures and decided not to proceed with the $2,000 cap on tax deductable self-education expenses (estimated at $500 million over the forward estimates) leaving $3.3 billion in cumulative budget savings. Importantly the MYEFO cuts, together with the 2013-14 Budget cuts, have created very difficult adjustment pressures for our members. We do, however, welcome the undertaking of the Government to preserve funding arrangements for higher education, including the commitment not to make further cuts to the sector. Universities Australia (UA) is mindful that the current fiscal environment has constrained the Government s capacity to respond positively to previous funding reviews, however, UA considers that increased public investment in the higher education sector should remain the objective of Government. Given the low level of public investment in Australian universities compared with other OECD countries and the conclusions drawn by several studies (prior to the most recent savings announcements) that there is an under-investment in universities, UA recommends the 2014-15 Federal Budget at least maintains a strong commitment to the current indexation arrangements and the framework of the demand driven system. Looking ahead, UA recognises that there is a pressing need to address the issue of sustainable investment for Australian universities to assure the maintenance of Australia s global position as a leading provider of higher education and research. A number of suggestions made recently by individual universities and sub-groups on alternative funding proposals that would place more of the comparative cost burden on students suggest that such a debate will not necessarily be confined to calls for additional public funding and will necessarily promote a discussion around the relative public/private benefits of higher education. UA acknowledges the need for a well-informed discussion on future investment models. In recognising the policy sensitivities and complexities that such a discussion will inevitably involve, UA will release a discussion paper exploring funding options and policy consequences. The purpose of the paper will be to help inform policy thinking to mitigate the long-term economic risks associated with underinvestment in the university sector. Consideration also needs to be given to the development of a long-term, predictable, and stable investment model for university research programs including those aimed at encouraging excellence, building the research workforce, and nationally significant infrastructure. Apart from direct funding issues, the 2014-15 Budget also provides the opportunity to address concern about excessive regulation and reporting requirements currently facing our members and to meet the Government s annual $1 billion red-tape reduction target. Universities Australia Pre-Budget Submission 2014-15 2

In this submission, we propose that the 2014-15 Federal Budget should in the immediate period ahead: Maintain current indexation arrangements over the forward estimates period to arrest the decline in real government funding per student; Retain and expand the framework of the demand driven system; Restart the strategic National Collaborative Research Infrastructure Scheme (NCRIS) investment and over time, moving to a higher level of funding of $150 to $200 million per annum; Provide continuing funding for Future Fellowships Scheme at a baseline level of at least $85 million per year; Provide up to $10 million per annum for a program to continue to support international research collaboration, where funding except for the Australia-India Strategic Research fund is currently set to cease after June 2014; and Provide necessary resources to implement the deregulation recommendations proposed by the Review of Higher Education Regulation and the PhilipsKPA Review of Reporting Requirements for Universities. And as Budget circumstances allow, it is important that the Government over the medium to long term: Increase Government investment in tertiary education from the current 0.76 per cent of GDP to the OECD average of 1.12 per cent of GDP; and Restore the Sustainable Research Excellence (SRE) funding to 50 cents per dollar of indirect research costs. Section 1: Government investment in universities Overview Increased government investment in universities promotes the national interest and is one of the important drivers to promote Australia s productivity growth and international competitiveness. Against the backdrop of a worsening Federal Budget position, the former Labor Government initiated a series of higher education budget savings measures, worth $3.3 billion over the forward estimates. These budget saving measures announced in 2012-13 MYEFO and in the subsequent 2013-14 Budget, have created difficult adjustment pressures for our members. This decrease in public funding to the higher education sector will exacerbate the well-documented public underinvestment in our higher education sector as compared to other OECD countries. Nonetheless, Universities Australia (UA) welcomes the Government s commitment to preserve the current funding arrangements for higher education, and more importantly, the commitment not to make further cuts to the sector. The 2014-15 Budget provides the opportunity to maintain previous reforms that work to arrest the decline of public investment in the sector, such as the demand driven funding model and improved indexation arrangements. The 2014-15 Budget also provides the opportunity for longer-term reform that progressively implements the recommendations of previous Government Reviews, and allows Australia to begin catching up to its international peers. Mindful of current fiscal constraints, we urge the Government to: Universities Australia Pre-Budget Submission 2014-15 3

Maintain current indexation arrangements for the higher education sector; Retain and expand the demand driven system; and Increase government investment in the higher education sector to at least the OECD average level of investment over the longer term. Current government investment in tertiary education Studies and various Government reviews have shown that Australia has historically under-invested in university education. Figure 1 shows that Australia is significantly under-investing in tertiary education: Australia ranks 25 th out of 30 OECD countries for public investment in tertiary education; Australia publicly invests just 0.76 per cent of GDP in tertiary education compared to the OECD average of 1.12 per cent; and Australia is investing 32 per cent less than the OECD average in tertiary education. Figure 1: Public investment in tertiary education as a percentage of GDP Source: OECD 2013, Education at a Glance 2013: OECD Indicators, OECD Publishing, p. 184. Note: Income contingent loans such as HECS are treated as private expenditure under the OECD methodology. If the Government-borne costs of income contingent loans are taken into account, Australia s public expenditure on tertiary education is estimated to rise to about 0.84 per cent of GDP, which is still 26 per cent below the OECD average. Real growth in public investment in higher education has been weak compared to other OECD countries. Figure 2 shows: Real public investment in tertiary education grew 65 per cent over the 1995 to 2010 period for average OECD countries, compared to 22 per cent growth in Australia; Universities Australia Pre-Budget Submission 2014-15 4

Australia ranks 26 th out of 29 OECD countries for which data is available for real public investment growth in tertiary education, between 1995 and 2010; and These figures translate to an average real growth rate of 3.5 per cent per annum across OECD countries, compared to a growth rate of only 1.4 per cent per annum in Australia. This implies that other OECD countries have increased their public investment in higher education by 150 per cent more than Australian on average over the period from1995 to 2010. Figure 2: Real growth in public investment in tertiary education, 1995 to 2010 Source: OECD 2013, Education at a Glance 2013: OECD Indicators, OECD Publishing, p. 208. Historical growth in expenditure per student (both public and private) in Australia has fallen in real terms compared to most OECD countries, where expenditure per student has risen as shown in Figure 3: Expenditure per tertiary student decreased by 0.12 per cent per annum in Australia between 1995 and 2010; On average across the OECD, expenditure per student increased by 0.9 per cent per annum in real terms over the same period; Australia was just one of seven countries where expenditure per student has decreased; and Australia ranked 19 th out of 25 countries for growth in expenditure per student. Universities Australia Pre-Budget Submission 2014-15 5

Figure 3: Change in annual expenditure per student on tertiary education, 1995 to 2010 Source: OECD 2013, Education at a Glance 2013: OECD Indicators, OECD Publishing, p. 179. Note: Include both public and private expenditure. Successive reviews of the university sector have found similar results to the above comparisons, and have concluded that there is a need for significant increases in Government funding. For example, the 2008 Bradley Review 1 found: Australia is the only OECD country where the real public contribution to tertiary education institutions has remained at the same level in 2005 as it had been in 1995; compared to 49.4 per cent growth in average OECD countries over the same period; 2 and The amount of Commonwealth funding per subsidised university place fell 12.4 per cent in real terms from 1989 to 2008, whilst costs of teaching and research have risen sharply. 3 The Bradley Review recommended: The Government increase Commonwealth funding per student for teaching and learning by 10 per cent from 2010; and The Government maintain the future value of the increased base funding by using a revised index formula from 2010. 4 1 Commonwealth Government 2008, Review of Australian Higher Education: Final Report, Canberra, December. Hereafter, Bradley Review. 2 Ibid, p.147. 3 Ibid, p.149. 4 Ibid, recommendations 26, 27 and 29, p.153 to 159. Universities Australia Pre-Budget Submission 2014-15 6

Similarly, the Higher Education Base Funding Review released in October 2011 found Commonwealth funding per student place had fallen by 23 per cent in real terms from 1995 to 2010, from $12,000 per student per annum to $9,300 (in 2012 dollars). 5 The Report recommended that: The average level of base funding per place should be increased to improve the quality of higher education teaching and to maximise the sector s potential to contribute to national productivity and economic growth (Recommendation 2). In response to the Bradley review, the former Labor Government: did not implement the 10 per cent increase in Commonwealth funding per student; but introduced improved indexing arrangements from 2012. However, in the 2013-14 Budget, it announced an efficiency dividend that would reduce base funding per student below the indexed amount by 2 per cent and 1.25 per cent in 2014 and 2015 respectively. The net effect of these policy changes is that base funding per student by 2015 will be about 15 per cent below the levels recommended by the Bradley review. The benefits of Government investment in university education Increasing public investment in the university sector contributes to higher GDP growth: The 2013 Commonwealth Government modelling by the Australian Workforce and Productivity Agency (AWPA), found each extra $1 invested in tertiary education would on average grow the economy by $26 by 2025, as a result of increased in labour force participation and employment. 6 AWPA found industry demand for qualifications was expected to grow at 3 to 3.9 per cent per annum. The report called for a $2.1 billion increase in investment in tertiary education above current Treasury projections, and found such an increase would, on average grow GDP by $54 billion per annum and tax revenue by $16 billion per annum by 2025. The OECD (2013) estimated a public internal real rate of return to the Australian Government from investing in tertiary education at 13.4 per cent per annum. The OECD estimated a net present value to the Australian Government of around $104,000 per man and $71,000 per woman that are university educated mainly arising from the higher lifetime taxes paid by the university graduate significantly exceeding the direct costs to Government of funding the additional university place. 7 The estimated 13.4 per cent real rate of return is very high, and significantly exceeds the real opportunity cost of capital for business which is typically estimated between 8 per cent and 10 per cent. 8 It should also be noted the OECD calculations show a significantly higher rate of return to Australia from investing in tertiary education, 13.4 per cent, versus the OECD average of 10 per cent. This difference is likely to reflect Australia s relative under-investment in tertiary education. KPMG-Econtech (2010) estimates a 14.1 per cent real rate of return from the government increasing investment in the university sector, due to increased worker productivity and workforce participation. 9 The report estimated that if Government expenditure on university education rose from 0.7 per cent of GDP to 1 per cent of GDP, by 2040: 5 Higher Education Base Funding Review: Final Report, October 2011, p.4 and Figure 1.1. 6 AWPA 2013, Future Focus: 2013 National Workforce Development Strategy, p.16 and Appendix 6. 7 OECD 2013, Education at a Glance, p.146-147. 8 The cost of capital comprises the real long-term government bond rate, typically between 2 and 4 per cent, and the market risk premium that is generally estimated to lie between 5 and 7 per cent. 9 KPMG-EconTech 2010, Economic Modelling of Improved Funding and Reform Arrangements for Universities, p.6-8. Universities Australia Pre-Budget Submission 2014-15 7

o Productivity is expected to be 3.8 per cent higher as a result of a more productive university graduates; o Productivity is expected to rise by a further 1.1 per cent due to improved university research; o Labour force participation rises by 1.1 per cent from higher participation rates for university graduates, and more international students staying on living and working in Australia; o Gross GDP, before funding costs, is expected to increase by 6.1 per cent; o The increased government investment in the university sector has a net funding cost of 0.5 per cent of GDP; o The net gain in living standards or consumption over the longer term is 5.5 per cent; and o The real rate of return on the increased government investment in university education is 14.1 per cent per annum. This implies that for every dollar invested in the sector, an annual return of $1.14 is expected, on top of the rate of inflation. Government investment in higher education also generates a number of benefits to the community, including: University graduates have significantly higher work force participation and employment rate than those who complete secondary school or less (OECD figures show 83 per cent employment rates for tertiary educated people compared to 55 per cent for those failing to complete secondary school). 10 University graduates have higher production when in work, with OECD and AMP/NATSEM figures showing university graduates earning 40 per cent to 45 per cent wage premiums compared to secondary school completers, and 66 per cent to 100 per cent premiums compared to those who do not complete secondary school. 11 University graduates pay more taxes to Government, as they are more likely to work and earn more when in work. AMP/NATSEM figures show university graduates and postgraduates earn on average between $2.9 million and $3.2 million over their lifetime, whereas those who finish Year 12 or less will on average earn $2 million or lower. University graduates typically pay between $300,000 and $540,000 more in taxes over their lifetime. Given funding per student typically costs the Government between $40,000 and $60,000 per university course, 12 the increased taxes for Government from university graduates are about eight-fold higher than the upfront amount invested. Given these high rates of return, which exceed both the private opportunity cost of capital and the rates of return from other government projects, further Government investment in university education will, as a beneficial consequence, expand Australia s economic output, expand tax revenue resulting in long-term budget surpluses, and promote Australia s economic welfare over the long run. 10 OECD 2013, op. cit., p.92-93. 11 AMP/NATSEM 2012, Smart Australians, Education and innovation in Australia, Income and Wealth Report, p.28-30. 12 Government operating grant funding and HECS loan costs ultimately borne by Government are estimated to cost about $12,800 per full time university student in 2013. Universities Australia Pre-Budget Submission 2014-15 8

Maintaining the current indexation arrangements The improved indexation arrangements for all programs funded under the Higher Education Support Act 2003 from 2012 have improved the real rate of growth in university funding; however, disappointingly real growth in university funding has fallen after the introduction of a 2 per cent and 1.25 per cent efficiency dividend for university funding in 2014 and 2015 respectively. The current indexation arrangements announced in 2009 are based on 90 per cent of the Wage Price Index for Professional Scientific and Technical Services with a 75 per cent weighting and the remaining 25 per cent weighting on the CPI. The old formula used 75 per cent of the Safety Net Adjustment (SNA) index and 25 per cent of the CPI. This revised indexation arrangement using the wage price index better reflects the cost increase in higher education sector than the SNA index, which has continued to trail the growth in CPI. Figure 4 shows that real government funding per Commonwealth supported student increased 7 per cent from $10,210 in 2011 to $10,923 in 2012 under the new indexation arrangements. However, the efficiency dividend announced in the 2013-14 Budget, would result in the real government funding falling to an estimated $10,361(-2.3 per cent) and $10,327 (-0.3 per cent) in 2014 to 2015 respectively, before growing 0.9 per cent respectively in 2016 and 2017 to $10,415 and $10,505. Figure 4: CGS per Commonwealth supported student, 2005 to 2017e (2013 $) Source: DIISRTE administrative data as at 1 May 2013. In addition, complex funding arrangements can also obscure the impact of Budget decisions on universities and heighten the risk of adverse impacts on university capacity to educate the workforce. For example, funding provided through agencies such as Health Workforce Australia (HWA) part of the Health portfolio has helped to address shortages in quality, clinical education placements, supervisor and practice capacity. HWA funding was cut in the 2013-14 Budget. It is crucial that funding decisions not exacerbate existing constraints on universities, especially given low base funding levels, budgetary pressures within the portfolio, increased charges being levied on universities and workforce and student demand. In the 2014-15 Budget, UA recommends the Government maintains the current indexation arrangements consistent with its pre-election commitment to ensure the continuation of the current arrangements of university funding. The Government also indicates that [it has] no plans to make Universities Australia Pre-Budget Submission 2014-15 9

further cuts to the university sector or alter current indexation arrangements. 13 UA strongly supports and endorses this commitment. The current indexation formula was introduced in recognition that the previous formula meant that funding was failing to keep pace with the increases in the per student cost of teaching. The new indexation formula better reflects the structure of the cost base and must be retained to prevent further reductions in real per-student base funding levels. Retain the demand driven system The introduction of the demand driven system and the removal of almost all caps on undergraduate places has been a positive reform for students in the short term and the nation in the long term. All indicators suggest that maintaining the demand driven funding system will deliver benefits for national productivity, social equity, institutional quality and students. While concerns have been expressed by some on the impact that such a market-based approach might have on graduate and education quality, these are without foundation given that those admitted to university under the demand driven system are yet to graduate. There is little evidence, at this stage, to suggest any quality inferiority compared to the capped system that preceded it. The introduction of the demand driven system for domestic undergraduates has seen strong growth in commencing domestic undergraduate students. About 198,000 full time equivalent domestic undergraduate students commenced in 2012, an increase of more than 45,000 on 2008. The latest available data has shown a further 4 per cent increase in commencing undergraduate students in the first half of 2013, with 91,311 students commencing compared to 87,803 students in the first half of 2012. Not including sub-bachelor courses in the demand driven funding system, however, could be creating a distortionary effect by encouraging those individuals into undergraduate study when better suited to an enabling program. This in turn places more pressure on already stretched university support services and may have downstream negative impacts on retention and completion rates. UA recommends that Government consider expanding the demand driven system to sub-bachelor programs so that those students who advance to full bachelor study have greater potential to succeed. Increase investment in tertiary education over the long term Previous studies and reviews suggest Australia s tertiary education sector is under-invested in compared to our international peers. In 2010, public expenditure per tertiary student was US$7,445 in Australia, 14.1 per cent below the OECD average of US$8,676 and almost 20 per cent below the expenditure level in the US (US$9,275). 14 We recognise current Budget circumstances make it more difficult to provide additional increases in base funding per student over the short term. However, over the long term as Budget circumstances allow, the Government should consider opportunities to increase its investment in tertiary education from the current 0.76 per cent of GDP to the OECD average of 1.12 per cent of GDP. Using the KPMG-EconTech (2010) model, the additional 0.36 per cent of GDP in public investment to the university sector, would grow GDP by about $281 billion or 6.1 per cent and would generate tax revenue net of funding increase by $41.5 billion in 2013 dollar terms by 2040. Against this background, UA considers there is a pressing need to develop a long-term sustainable funding framework for Australian universities. 13 Coalition Campaign Headquarters letter to Universities Australia on 2 September 2013. 14 OECD 2013, op. cit. p. 209. Universities Australia Pre-Budget Submission 2014-15 10

Public commentary and submissions to the Review of the Demand Driven System have flagged alternative funding proposals to, for example, increase student contributions, allow for full fee-paying places for domestic undergraduate places above a negotiated enrolment allocation, provide greater flexibility in the allocation by universities of Commonwealth funding to sub-bachelor, undergraduate and post-graduate load. These suggestions inevitably raise questions about the appropriate level of the student contribution and the taxpayer contribution to meeting the costs of higher education. Such questions raise a number of complex and sensitive policy issues that would benefit from further exploration and consideration. To this end, UA will release a discussion paper in the first half of 2014 exploring funding options and policy implications and consequences to help inform the anticipated on-going policy discussion around university funding and investment. Most importantly, the objective is to see a long-term sustainable funding framework that mitigates against the economic risks associated with under-investment in Australian universities. Section 2: Government investment in university research Overview Research and innovation is the key source of future growth in productivity, living standards and community well-being. Australia s potential to build a strong, stable and efficient research workforce is being eroded by: the stop-start nature of previous funding processes such as NCRIS and the Future Fellowships program; delaying and reducing previous funding commitments such as the SRE scheme; and protracted delays and uncertainty in implementing the recommendations of government inquiries. The 2012 National Research Investment Plan (NRIP) provides a framework for maximising the returns to society from Government investment in research. The 2014-15 Budget provides the opportunity to articulate a long-term investment plan by: providing $150 million to $200 million per annum for strategic national research infrastructure; providing $85 million per annum for the continuation of the university fellowships program; restoring previous funding for the Sustainable Research Excellence scheme; and providing up to $10 million per annum to support international research collaboration. The benefits of publically funded research Studies have shown that publically funded research generates high returns and is the key to raising living standards. A large number of studies conducted in a wide range of countries over a 30 year period to the mid- 1990s has consistently found the rate of return on public investment in research and development (R&D) is high, and in the range of 20 to 50 per cent. The Productivity Commission has found, in seeking to measure the return on government investment in R&D, the benefits are likely to be high for R&D conducted by universities due to their orientation Universities Australia Pre-Budget Submission 2014-15 11

to public good research and their role in the development of high quality human capital for the Australian economy. 15 Innovation stemming from R&D is a key driver of per capita income growth, increasing productivity and living standards. For example: The OECD has commented: Innovation drives growth and holds the key to employment generation, and enhanced productivity growth through knowledge creation and its subsequent application and diffusion. 16 The Australian Bureau of Statistics says: In the long term, multi-factor productivity represents improvements in ways of doing things (technical progress), which is the ultimate source of economic growth and higher living standards. 17 The Productivity Commission has found 65 per cent of productivity growth is ultimately attributable to multi-factor productivity growth, which is driven by innovation and the accompanying better-training of labour. The Commission found innovation to be critical to Australia s growth and its preparedness to meet emerging economic challenges. 18 Restarting NCRIS investment The National Collaborative Research Infrastructure scheme (NCRIS) was established in 2004-05 to: provide major research infrastructure that is national and strategic, collaborative, and worldclass; promote a sustained cultural shift towards investment attitudes that are national and strategic, and collaborative; and foster research activity that is collaborative and world-class. The NCRIS addressed the problem that many high-priority, medium-scale research facilities or infrastructure investments are too large or complex to be supported by any single research institution, and too important to the wider research community to be confined to individual interests or jurisdictions. NCRIS sought to avoid the waste of limited resources that would result from competitive or uncoordinated duplication of key research facilities. 19 NCRIS has provided a range of world class research facilities including the Integrated Marine Observing System, Atlas of Living Australia, the Australian Plant Phenomics Facility and the Australian National Fabrication Facility (ANFF). These investments have provided very good returns to the government. For example, the government investment of $91 million in the ANFF now has a current project value approaching $200 million. 20 Despite the well-documented importance of NCRIS, funding to the scheme has been volatile, causing inefficiencies. 15 Productivity Commission 2007, Public Support for Science and Innovation, Research Report, Canberra and NRIP at p.16. 16 OECD 2010, Innovation Strategy; Getting a Head Start on Tomorrow. 17 Australian Bureau of Statistics (ABS) 2010, Measures of Australia s Progress, Catalogue No. 1370.0. 18 Productivity Commission 2007, op. cit. 19 Department of Education, Science & Training 2007, Review of NCRIS Roadmap and Facilitation Processes. 20 See DIISRTE 2012, op. cit., p.76 Box 8.1. The ANFF specializes in providing cutting-edge equipment and technology in nano and micro fabrication. The industry is predicted to be a $3 trillion market by 2020. The ANFF connects 19 universities and CSIRO to provide almost 500 tools to process materials and transform them into new applications in sensors, medical devices, nanophotonics and nanoelectronics. Universities Australia Pre-Budget Submission 2014-15 12

($ million) Funding The Government provided $412 million of NCRIS funds over four years to 2010-11 at an average rate of $116 million per annum in 2013 dollar terms. 21 When NCRIS funding ceased in 2012, Australian universities negotiated with government and secured a stop-gap additional funding of $60 million to 2013-14, pending a new program. The 2013-14 Budget provided a further two years of funding for NCRIS, running at $91 million per annum or about 21 per cent below the old funding rate. This stop-gap funding is only to be used to maintain existing facilities and cannot be used to invest in new strategic infrastructure. The stop-start unpredictable nature of NCRIS funding over time is illustrated in Figure 5. Figure 5: National Collaborative Research Infrastructure Scheme Funding 250 200 NCRIS1 150 Super Science CRIS 100 NCRIS2 50 Total Infrastructure Funding 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 The 2012 National Research Investment Plan indicated that programs such as the NCRIS that are core to sustaining Australia s research need to be ongoing, as stop-start nature of the scheme funding arrangement imposes additional costs and makes the government s investment less effective. 22 Given the relative success of NCRIS, and that the new funding needs to support both current successful facilities and investment in new infrastructure, UA recommends that the Government should consider over time, moving to a higher level of funding, such as the funding level of $150 million to $200 million per annum recommended by the Cutler Review. 23 Given the difficult Budget situation, the Government could consider this level of funding to be provided over a 10 year period to re-start strategic NCRIS investments, maintain and expand existing valuable facilities, and provide certainty to the research community. Funding of Future Fellowships scheme The Future Fellowships scheme started in 2009, providing $326 million of funds for mid-career researchers five to 15 years after completing a PhD. 21 See Budget, Portfolio Budget Statements, Budget Related Paper Number 1.14, Innovation, Industry, Science and Research Portfolio, 2008-09 to 2011-12. 22 See DIISRTE 2012, op. cit., p.75 and 77 23 Cutler 2008, Venturous Australia: Building Strength in Innovation, Review of the National Innovation System Report. (hereafter, Cutler Review). See especially Recommendation 6.14 at p.76. Universities Australia Pre-Budget Submission 2014-15 13

The policy objective of the Fellowships scheme is: to promote research in areas of critical national importance by giving outstanding researchers incentives to conduct their research in Australia. The aim of Future Fellowships is to attract and retain the best and brightest mid-career researchers. At present many highly qualified mid-career researchers choose to work overseas to further their careers due to lack of opportunities in Australia. The Future Fellowships scheme addresses this problem and will significantly boost Australia s research and innovation capacity in areas of national importance. 24 The Fellowships scheme replaced the previous Australian Research Council (ARC) Professional Fellows and ARC Federation Fellows schemes. While the 2013-14 Budget provided for an additional five years of funding, the funding provided is at a dramatically lower rate of about $32 million per annum, or about 61 per cent below the previous funding rate when the Scheme first established in 2008-09. The Future Fellowships scheme provides important funding to secure a pipeline of researchers, with mid-career researchers representing approximately 60 per cent of all researchers. 25 The scheme attracts applications from more than 50 overseas nations. There are more than 600 high quality proposals being considered by the ARC each year. 26 Without further investment by Government in the Fellowships scheme, many researchers, often midway through their projects and on the cusp of important breakthroughs, will move overseas where other governments are seeking to attract the world s best. Those researchers staying in Australia will find it harder to maintain their research effort, impacting on the careers of numerous people as well as negatively impacting Australia s research capability. Reducing peoples career prospects will decrease research performance, training of researchers and interaction between industry and academia. Therefore, UA argues that the Government should continue to provide long-term funding for the Future Fellowships Scheme for 10 years at a base line level of at least $85 million per year, indexed to the growth in annual wages for scientists and professionals. Restoring SRE funding to 50 cents in a dollar The Sustainable Research Excellence (SRE) scheme was introduced by the Government in 2010 with the dual objectives to: (i) (ii) help address an identified shortfall in the funding available to meet the indirect costs associated with Australian Competitive Grant (ACG) research; and support universities to build and maintain research excellence through the implementation of best practice financial management, performance and reporting frameworks. 27 The SRE was introduced following a Government review that found the ACG funding did not cover the indirect costs of producing research. 28 24 http://www.arc.gov.au/ncgp/futurefel/future_default.htm 25 Edwards, D, Bexley, E. and Richardson, S. 2011, Regenerating the Academic Workforce: The Careers, Intentions and Motivations to Higher Degree Research Students in Australia. 26 http://www.arc.gov.au/ncgp/futurefel/ft12_selection_report.htm#overview 27 Department of Innovation, Industry, Science, and Research 2009, Sustainable Research Excellence (SRE) in Universities 2010 Guidance Paper. 28 Allen Consulting Group 2009, The indirect costs associated with university research funded through Australian Competitive Grants: Final Report. Universities Australia Pre-Budget Submission 2014-15 14

The SRE was phased-in starting in 2010 to meet 20 cents per dollar of indirect research costs, rising to 50 cents per dollar by 2014. Universities were highly supportive of the SRE funding because the previous system had poor incentives: universities would make losses each time ACG funding was won because indirect costs were not recovered; the losses would grow the more successful the university was in doing research and winning ACG funding; and the more successful research universities would have to heavily cross-subsidize their research activities, reducing the motivation to build and maintain research excellence. However, the Government announced in the 2012-13 MYEFO, without consultation, a reduction in SRE funding and delay in planned increases, resulting in a proposed SRE funding decrease of 41 per cent over the four years to 2015-16, as shown in Table 1. 29 Table 1: Decline in SRE funding following the 2012-13 MYEFO Financial Year Original SRE funding ($m) Revised SRE funding after 2012-13 MYEFO ($m) 2011-12 165 165 Percentage decrease in SRE funding Current funding per dollar of indirect research costs 2012-13 219 139-36% $0.26 2013-14 334 170-49% $0.22 2014-15 346 187-46% $0.21 2015-16 358 245-32% $0.20 2016-17 n.a. 298 n.a. $0.23 The decrease in SRE funding means only 21 cents per dollar of indirect research costs are funded in 2014-15, and less than 25 cents per dollar are funded out to 2016-17 as shown in Table 1. The decreased in funding has caused: a $499 million gap to 2015-16 between planned investment by universities in research and funding to cover those investment costs; some universities to cancel investments in research, resulting in less overall research; some universities to alter their strategic thinking about bidding for and winning research grants; significant disruption to university planning and financial management, with monies for research to be sourced and cross-subsidised from other services; and significant problems with the long-term nature of planning to provide and fund research. In the 2014-15 Budget, UA calls on the Government to restore the previous Sustainable Research Excellence funding profile, to lift funding to 50 cents per dollar of indirect research costs. Restoring the SRE funding would significantly improve the incentives for universities to invest in research, and give much greater confidence to universities in planning their long term research investments. 29 See DIISRTE Portfolio Budget Statements, 2012-13 and 2013-14. Universities Australia Pre-Budget Submission 2014-15 15

Supporting international research collaboration International collaboration is an essential element of Australia s innovation and research agenda and is necessary to achieve our international objectives. Highly valued research partnerships are often underpinned by robust government-to-government agreements and the development of strategic relationships. International challenges require the development of a shared agenda for cooperation based on mutual interests and priorities, complementary strengths and therefore targeted action by universities and researchers. Today research is a highly connected global enterprise. Australia s research standing currently guarantees interest from potential partners, however, without explicit support to facilitate such partnerships opportunities will be lost to other nations. The global enterprise of science is funded with a combined spend of US$1 trillion per annum. 30 In 2012 13, the Australian Government invested approximately $9 billion in science and innovation. However, none of this funding supports coordinated international research collaboration, with the exception of the Australia-India Strategic Research Fund. There is an enduring need for government programs that facilitate Australia s international science engagement and enhance the return on Australia s investment in science and innovation. Australia s investment in this area is lagging compared to other countries. The UK Innovation and Research Strategy for Growth 31 has proposed that to ensure that they maintain their position of global leadership by fostering excellence within research collaborations, by actively promoting their high technology and research sectors overseas, and supporting researchers access to international markets and collaboration. The quality of UK research is also underpinned by its ability to attract highly productive and internationally mobile researchers. At the same time the European Commission (EC) is working towards an opening of research programs in well-defined research areas with key third countries on a reciprocal basis, 32 which will require ongoing government-to-government work to seek to align granting programs from Australia and the EC. The new Horizon 2020 program represents an important collaborative opportunity, in an environment where European countries are particularly interested in engaging with Australia. The central premise of the Australian Government economic and diplomatic policy is that Australia must deepen and broaden relationships with the Asian community as competition for influence and access to markets increase in the coming decades. This essential collaboration will be assisted by initiatives such as the New Colombo Plan, but must be augmented by international research collaboration funding. These long term strategic relationships also depend on deep engagement between our universities, publicly funded research agencies, scientific academies and industry. Australia s participation in ongoing policy dialogues in education, science and research is critical in government to government relationship building. For over a decade, the International Science Linkages (ISL) Fund was the Australian Government s leading mechanism to increase Australia s participation in international research, to strengthen strategic partnerships between the Australian and overseas research communities, and to facilitate access by Australian researchers to global technology and science facilities. The ISL program advanced these priorities by funding strategic prioritisation in international agreements, staff exchanges, fellowships and workshops to promote ideas exchange and relationship building; providing competitive grants for collaborative research projects with overseas partners. The program also aligned the Government s international objectives, as international science engagement 30 Knowledge, Networks & Nations: Global scientific collaboration in the 21 st century. The Royal Society 2011 31 UK Department for Business Innovation & Skills Dec 2011 32 A Strategic Framework for International Science & Technology Cooperation(Policy Paper) EUR 23607 EN Universities Australia Pre-Budget Submission 2014-15 16

forms part of Australia s relationship building with key bilateral and multilateral partners including China, India, Japan, the United States and Europe. It is concerning that Government funding for all international research collaboration support, with the exception of the Australia-India Strategic Research fund, will cease in June 2014. While many of Australia s research relationships are quite mature, for example with Europe and the US, significant benefits would accrue from a more targeted approach to collaborations, catalysed by government-togovernment negotiations. The nature of these interactions must change to a more focused effort in specific research areas of mutual interest and benefit. The rapid evolution of research, knowledge and innovation globally also suggests Australia must retain capacity to engage with, and respond to emerging opportunities. As the evaluation of the International Linkages program noted In the absence of an effective international research collaboration program, Australia would be less able to build enduring relationships with countries of strategic importance and less competitive with developed and developing nations who are increasing their science collaboration effort. This could serve to limit the scope and impact of Australia s research effort, thereby reducing the return on Australia s investment in science and innovation and the broader return to the Australian economy and community. 33 Therefore, UA recommends that the Government provide up to $10 million per annum to continue to support coordinated international research collaboration over the forward estimates. Section 3: Removing the red tape burden on the university sector Australia s university sector is one of the most regulated sectors in the country, imposing an enormous cost and administrative burden on the sector. While we recognise the need for effective accountability, the existing regulatory and reporting regime is characterised by unchecked creep, duplication, fragmentation, inefficiency, and waste. The Prime Minister recognised the need to reduce the excessive regulatory compliance burden currently facing the university sector: by the time [universities] have answered to Commonwealth and state officialdom it seems that no institutions are as heavily invigilated. Well-intentioned outsiders shouldn t be trying to micromanage universities or bury them in reporting requirements 34 UA estimates that $280 million is spent every year to comply with regulatory compliance and reporting requirements imposed by Commonwealth and state governments. This estimate is based on the impact of university compliance departments typically having 15 to 20 dedicated staff to meet the demands of 100 separate State and Federal Acts directly regulating their operations. Universities incur direct regulatory compliance costs estimated to be at least $3 million per university or $120 million per year for the sector. A typical university is also required to report over 50 different data sets to the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE) annually, comprising 200 reporting instances per year, and over 50 data sets to other Government departments. Total reporting costs are estimated at $4 million per university, or about $160 million annually for the sector. Combined, this equates to $280 million. Given current fiscal circumstances, addressing red tape burden and improving government efficiency has become imperative for the University sector. There is substantial scope to remove or streamline current productivity-sapping, inefficient and unnecessary regulatory and reporting obligations and build a more cohesive, simplified and efficient policy, funding and regulatory system. Addressing the red tape burden facing the sector will produce savings over time for the Government through increased 33 Evaluation of the International Science Linkages Program, Commonwealth of Australia, 2011 34 Tony Abbott s address to Universities Australia Higher Education Conference, 28 February 2013. Universities Australia Pre-Budget Submission 2014-15 17

efficiency and productivity and will help to reduce compliance costs for universities, allowing them to divert more resources to the core business of teaching, learning and research. UA welcomes and supports the Government s decisions to fully accept all the recommendations of the Review of Higher Education Regulation 35 and the PhilipsKPA Review of Reporting Requirements for Universities, particularly: The establishment of a single national university data collection and information repository; The development of a standard university financial reporting template and protocol; The amendment of the Education Services for Overseas Students (ESOS) Act to make redundant audits for universities currently audited under the Tertiary Education Quality and Standards (TEQSA) Act; The development of a single higher education research data collection; and The removal of tuition protection service reporting requirement for universities. UA applauds the recent government decision to postpone the implementation of the Special Tuition levy, in line with the government s risk management approach for participation and funding of the Tuition Protection Scheme. In addition, UA also proposes: Re-focusing TEQSA to concentrate on its core functions of enforcing minimum threshold standards, course accreditation and re-registration; Reviewing the scope, utility and efficiency of the Compacts process; Student surveys to be administered by a single organisation; Considering the abolition of the MyUniversity website; and Removing reporting and regulatory duplication with the Australian Charities and Not-for- Profits Commission (ACNC). 36 Despite the current difficult Budget circumstances, UA is of the view that the 2014-15 Budget should provide the necessary funding to implement the above deregulation agenda. UA looks forward to working with the Government on planning for implementation, including securing the necessary resources to meet start-up costs. 35 Lee Dow, K and Braithwaite, V. 2013, Review of Higher Education Regulation Report. 36 See UA submission to the National Commission of Audit for detailed discussion about UA recommendations on deregulation: http://www.universitiesaustralia.edu.au/page/884/submissions---reports/reviews-and-inquiries/2013- submissions/national-commission-of-audit/ Universities Australia Pre-Budget Submission 2014-15 18