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Australian Government Productivity Commission: ‘Shifting the Dial: 5 Year Productivity Review’

The Productivity Commission’s Shifting the Dial: 5 Year Productivity Review was publicly released on 24 October.

A summary of key points from Supporting Paper No. 7: University Education as provided by the Productivity Commission is included below.

Inquiry report summary

This is the first document of its kind for the Productivity Commission — a look out across the landscape of factors and influences that may affect Australia’s economic performance over the medium term, in order to offer advice on where our priorities should lie if we are to enhance national welfare.

Key points from Supporting Paper No. 7: University Education

  • Universities are essential to Australia’s continued prosperity. Their research helps to raise productivity and living standards, while the knowledge and skills they teach to students develops human capital for better lifetime prospects, wages and productivity.
  • However, there are tensions between universities’ research and teaching functions. Many university staff are more interested in, and rewarded for, conducting research (due to established cultures and the importance international research rankings).
  • Teaching therefore plays second fiddle to research, with consequences for student satisfaction, teaching quality, and graduate outcomes.
  • Realigning university incentives (both financial and institutional) closer towards the interests of students and taxpayers would help restore balance.

− As the exact scale of any issues in teaching quality or student outcomes are difficult to determine, a first step would be improving their measurement, which would itself encourage universities to focus more on their teaching function.
− The appropriateness of Australia’s existing consumer law provisions and their application to the higher education sector could also be reviewed to determine whether they provide sufficient restitution for inadequate teaching quality.
− Financial incentives, such as through performance-contingent funding (as proposed in the 2017-18 Budget) are also a step in the right direction, although there are a range of challenges with making this approach fair and effective.

  • There is limited evidence that teaching quality is improved by universities jointly undertaking research and teaching (the ‘teaching-research nexus’), which undermines the rationale for the Australian Government’s restriction that all universities must do both.
  • The teaching-research nexus is also used to justify cross-subsidies from teaching to research. This can create labour market distortions, as it encourages universities to increase the number of students undertaking high-margin courses and minimise the number doing low-margin courses, to increase research funds.

– Making payments to universities for Commonwealth-supported places more cost-reflective would be an option to address the problem. However, it would have undesirable flow-on effects to university research capacity unless offset by other funding initiatives. It cannot be recommended without a reassessment of research funding arrangements for universities, or indeed their overall operation.

  • Structural challenges in the Higher Education Loan Program (HELP) debt system can also result in unproductive skills formation. Increased costs for taxpayers associated with this may encourage short-term savings that have unintended consequences (such as limiting access and efficiency) or that undermine the principles of the system.
  • As a solution, the Government has proposed decreasing the initial HELP repayment threshold. More debtors would make repayments, reducing the cost of the system.

− This is unlikely to address many long-term structural challenges and could result in reduced labour supply and workforce participation through higher effective marginal tax rates. It could also undermine the historical ‘guaranteed returns’ principle of HELP (although it is subject to debate whether this remains a valid rationale).
− A less distortionary method of reducing doubtful HELP debts would be to collect outstanding amounts from deceased estates (with adequate protections for hardship).

View the full report here:

Source: Productivity Commission, University Education, Shifting the Dial: 5 year Productivity Review, Supporting Paper No. 7.

Posted 25 October 2017 Posted in Editorial, General