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Why large university surpluses underscore the need to reform how they are funded and governed

The election of a new federal Labor government has probably drawn sighs of relief across the higher education sector. University staff and students are hoping for a friendlier approach than they received from the coalition government.

Higher education lobby groups have already presented their wish lists and funding priorities. Still, increased funding may be a tougher sell now that several universities have announced incredibly large surpluses in their annual reports.

Read more: Labor promised university deal could be watershed for higher education in Australia

So how much were those surpluses?

The University of Sydney Operating surplus of A$1.04 billion stands. But the annual reports of the largest universities all show healthy surpluses. Monass, UNSW and queensland reported surpluses of over $300 million.

While some universities, such as The Trobereported operating losses, many other the universities all over the country too checked in surpluses, some of which are not far removed from the Sydney result in relative terms. Examples include Charles Sturt (21% surplus of $143 million) and Newcastle (a 19% surplus of $185 million).

The new government has already pledged to put in place fiscal expansion policies in areas such as the National Disability Insurance Scheme (NDIS), elderly care and early childhood education. In an inflationary environment, one might be tempted to take a lean approach to university funding – ditch the inconsistent offer for job-ready Coalition graduates and let universities take care of themselves .

After all, despite regularly speaking out against the damage caused by the Morrison government, Labor in Opposition has made few concrete political commitments to universities beyond the welcome addition of 20,000 student places.

Read more: Labor offers more university places, but more radical change is needed

However, the latest university surpluses highlight, rather than diminish, the case for increased public funding and even broader reform of university governance and finances. The key to understanding this lies in the market-based revenue streams that underlie these surpluses.

Take the University of Sydney. According to his Annual Reportthe surplus was:

“primarily due to increased international student enrolment, strong investment performance and one-time items including the $95.1 million contribution from the Commonwealth Government’s Research Support Program and net gains from the disposal of real estate assets”.

Revenue from international student tuition fees increased by approximately $250 million. Investment returns increased by nearly $400 million.

It was a similar story elsewhere. Newcastle University harvested $119 million in additional investment income and UNSW $117 million. Many universities have also taken advantage of sell their shares in the field of international student placement IDP Education.

In contrast, the University of Wollongong lost $169 million after terminating his contract with a private student accommodation provider, he had subscribed.

Remember, these are public institutions

Keep in mind that these universities are public institutions. They are created by Acts of Parliament. A public body accredits and regulates their ability to confer degrees.

Public universities have a legal responsibility to serve public purposes. Yet they resemble for-profit corporations in their financial governance.

This has been evident over the past two years. Having been JobKeeper Denied by the coalition government, universities have been savagely downsized. First casuals, then fixed-term contracts, then current contracts.

Read more: After 2 years of COVID, how bad has it really been for college finances and staff?

In response to what was shaping up to be a short-term decline in international student earnings, university leaders chose the corporate route. They restructured aggressively, losing incalculable expertise and institutional memory and throwing thousands of employees out of work. This process has boosted “profits” as employee spending has fallen at many universities.

Given the makeup of university boards – about a third of members come from the corporate sector – it is hardly surprising that a for-profit orientation has come to dominate.

What is the role of federal funding?

Federal Funding Parameters played a role. Successive federal governments have refused to fund the full cost of university education and to research.

Public funding represents a little more than half higher education revenue, if the government Contributions HELP are included. This creates an incentive for university heads to seek private sources of revenue to fill the gaps. In line with the company’s approach, the risks associated with market exposure have been transferred to staff by loading them onto precarious employment (nearly 70% higher education workforce) and the progressive restructuring of the workplace.

Surplus revenue is earmarked for investment in infrastructure or “to protect the University against unforeseen circumstances”, as the University of Sydney’s annual report states. Except, as we’ve seen over the past two years, when “unforeseen circumstances” have arisen, staff have borne the brunt to preserve balance sheets.

Read more: Here’s what government and universities can do about the precarious academic work crisis

What can governments do?

Such a perverse dynamic has no place in a public institution. And this is where federal policy can play a positive role. Increased and stable federal funding would reduce the incentive for university leaders to seek market-based sources of revenue and help avoid the wild budget swings of recent years.

But, given the corporate orientation of university governing boards, this would do little in itself to address issues such as chronic job insecurity and increased workloads.

Read more: 2 out of 3 members of university governing bodies have no professional expertise in the sector. There’s the making of a crisis

Governance structures are the responsibility of the state. However, federal legislation may nevertheless influence the internal resource allocation of universities. The work of Senate Special Committee on Job Security provides a good starting point.

The committee sought to hold universities accountable, as public institutions, to achieve positive employment outcomes. This advised:

“As a condition of receiving public funding, universities […] set publicly accessible targets to increase permanent employment and reduce job insecurity”.

He also argued that the government should legislate to improve unions’ ability to inspect university records for potential wage theft.

Such an approach is well within the remit of the government. This could steer universities toward more positive outcomes for employees, students, and the wider community. As things stand, university vice-chancellors appear to be saving for a rainy day when a typhoon sweeps through the area.

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