OECD comparisons don't prove our unis are underfunded

Since the 1990s, it is said, Australian universities have become ever more under-funded and over-reliant on fee income. Internationally we seem to lag our peers, as governments short-change the sector, our students and society.

Some claim that in 2011 Australia’s public spending on universities “ranked thirty-third out of the thirty-four OECD member countries". While governments across the OECD spent an average of 1.1% of their GDP, Australia spent just 0.7%. However the story is not so simple.

Misreading OECD data?

The OECD reports so often cited are easily misunderstood. In 2008 Julia Gillard claimed that under the Howard government, Australia’s public spending on tertiary education rose by “0%” over 1995-2005 while OECD spending rose by 49%. But Brendan O’Reilly, former director of Australia’s reporting of education statistics to the OECD, disputed this. He argued that spending had risen by 14% and that many commentators had misread the data:

most Australian commentators, when they see the term ‘public expenditure on educational institutions’ in OECD publications, tend to (wrongly) think it is the same as ‘public expenditure on education’. In reality, ‘public expenditure on tertiary education’ is comprised of two elements. The first element is […] mainly direct grants to tertiary institutions, which comprised 68% of total public spending […] The second element is ‘public transfers and payments to private entities’

The OECD table that compares our public spending at 0.7% of GDP with the OECD’s 1.1% represents O’Reilly’s first element.

In the same OECD report another table puts Australia’s total public spending on tertiary education (including student loans for fees or living costs) at 1.1% of GDP, against an OECD average of 1.4%. A third table on “tertiary type A” (university) programs puts total spending from public and private sources for Australia at 1.4%, in this case matching the OECD average.

Table 1 OECD tertiary spending comparisonsAuthor

As Table 1 shows, comparison gets tricky. Countries such as Italy or Spain, with higher comparison rates than Australia’s for public spending on “tertiary institutions”, may not have higher rates for “tertiary education”.

Along with France and Germany, they may have lower rates than Australia’s for total public and private spending on “tertiary institutions” (which does not refer just to universities). And their total spending for university (“type A”) programs may also be lower.

What makes Australia exceptional

The “under-funding” story overplays the idea of an OECD policy “norm” while overlooking Australian “exceptionalism”.

First, most OECD nations “tax and spend” to finance their tertiary sectors. But Australia also “spends then taxes” in the form of HELP loans, with (most) debts repaid as a targeted levy on higher graduate incomes. While governments pay HELP funding directly to institutions, OECD table B2.3 classes this as “private” spending; even for loans that are never repaid.

Second, most countries finance their tertiary sectors with a mix of public spending and domestic student fees. But in Australia this sector is also an export industry: compared to most countries a much higher share of our enrolments are international students.

A Grattan Institute report shows the significance of this third stream of revenue, topping up domestic fee income by more than a third. OECD table B2.3 classes international fee income as “private” spending.

Student revenueGrattan Institute, Mapping Australian Higher Education 2014-15

Exceptional GDP growth

The third element of Australian exceptionalism is our “stronger for longer” GDP growth. Part of the “under-funding” story that “ranks” us low simply reflects the “under-performance” of GDP growth elsewhere. From 1992 to 2012 Australian GDP grew by 95% against the OECD’s 55%.

The global financial crisis highlighted how GDP affects OECD spending comparisons. Over 2008-2010 Estonia cut education spending by 10%. But as a percentage of GDP its comparison rate of public spending rose because its GDP fell by more than 10%.

Chart 1 GDP growth in Table 1 OECD countries 2001-2011Author

Chart 1 shows GDP growth for different countries from 2001 to 2011. Table 2 shows what would happen if each agreed to spend 1% of its GDP on tertiary institutions every year from 2001 (as many did then), equal to 100 units of funding in 2001. By 2011 Australian spending would rise to 135 units, French spending to 113 units, Italian spending to 102 units, etc.

What happens if we combine Table 1 tertiary spending rates with each country’s GDP growth over time?

Table 2 Tertiary spending comparison rates, adjusted for GDP growthAuthor

As in Table 1, Australia still “under-performs” the OECD in “public spending on tertiary institutions” and each sample country; but not Italy. In “public spending on tertiary education” we still under-perform the OECD, the Netherlands and Germany; but now out-perform not just Italy, but France and Spain.

In “public and private spending on tertiary institutions” we now out-perform the OECD; and even the Netherlands. And in “public and private spending on type A programs” we now out-perform the OECD; the rest as before; but still not the Netherlands.

In university funding debates simple OECD based “rankings” look definitive. But they don’t prove as much as commentators claim.

Geoff Sharrock works in a university which would benefit from increased public funding and would suffer from decreased public funding.