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

The election of a new Labor federal government probably drew sighs of relief across the higher education sector. University staff and students will be hoping for a more sympathetic approach than they received from the Coalition government.

Tertiary education lobby groups have already put forward their wish lists and funding priorities. Yet the case for increasing funding might be a harder sell now that several universities have announced staggeringly large surpluses in their annual reports.

Read more: Labor's promised universities accord could be a turning point for higher education in Australia

So how big were these surpluses?

The University of Sydney’s A$1.04 billion operating surplus stands out. But the biggest universities’ annual reports all show healthy surpluses. Monash, UNSW and Queensland have reported surpluses of more than $300 million.

While some universities, such as La Trobe, reported operating losses, many other universities around the country also recorded surpluses, including some that aren’t far off Sydney’s result in relative terms. Examples include Charles Sturt (a 21% surplus of $143 million) and Newcastle (a 19% surplus of $185 million).

The new government is already committed to fiscally expansive policies in areas such as the National Disability Insurance Scheme (NDIS), aged care and early childhood education. In an inflationary environment, it might be tempted to take a light-touch approach to university funding – scrap the Coalition’s incoherent Job-Ready Graduates Package and let universities look after themselves.

After all, despite regularly decrying the damage done by the Morrison government, Labor in opposition made few concrete policy commitments to universities beyond the welcome addition of 20,000 student places.

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

However, the latest university surpluses actually highlight, rather than diminish, the case for more public funding, and indeed for broader reform of university governance and finances. The key to understanding this lies in the market-based sources of revenue that underpinned these surpluses.

Take the University of Sydney. According to its annual report, the surplus was:

“mainly due to increases in overseas student enrolments, strong investment performance and non-recurring items including the Commonwealth Government’s $95.1 million Research Support Program contribution and the net gains from the disposal of property assets”.

International student fee income increased by about $250 million. Investment returns were up by almost $400 million.

It was a similar story elsewhere. Newcastle University reaped $119 million in additional investment income and UNSW $117 million. Many universities also profited from selling their shares in international student placement business IDP Education.

On the downside, the University of Wollongong lost $169 million after terminating its contract with a private student accommodation provider it had been underwriting.

Remember, these are public institutions

Bear in mind that these universities are public institutions. They are created by acts of parliament. A public agency accredits and regulates their degree-conferring ability.

Public universities have legislated responsibilities to serve public ends. Yet they resemble profit-driven corporations in their financial governance.

This has been evident during the past two years. Having been denied JobKeeper by the Coalition government, universities savagely cut staff. First casuals, then fixed-term staff, and then staff on ongoing contracts.

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

In response to what loomed as a short-term drop in income from international students, university leaders took the corporate route. They restructured aggressively, losing incalculable expertise and institutional memory and throwing thousands of staff into unemployment. This process boosted “profits”, with employee expenses down at many universities.

Given the composition of university governing councils – about one-third of members are from the corporate sector – it’s hardly surprising a for-profit orientation has come to dominate.

What is the role of federal funding?

Federal funding settings have played a role. Successive federal governments have refused to fund the full costs of university teaching and research.

Government funding accounts for a little over half of higher education revenue, if government HELP contributions are included. This creates an incentive for university chiefs to pursue private sources of revenue to make up the shortfalls. Consistent with the corporate approach, the risks arising from market exposure have been devolved to staff by loading up on insecure employment (nearly 70% of the higher education workforce) and rolling workplace restructures.

Surplus revenues are earmarked for infrastructure investment or “to shield the University against unforeseen circumstances”, as the University of Sydney annual report states. Except, as we saw over the past two years, when “unforeseen circumstances” arose, staff bore the brunt to preserve balance sheets.

Read more: Here's what the government and universities can do about the crisis of insecure academic work

What can governments do?

Such perverse dynamics are out of place at a public institution. And this is the point at which federal policy can play a positive role. Increased and stable federal funding would reduce the incentive for university chiefs to pursue market-based sources of revenue and help avoid the wild budget gyrations of recent years.

But, given the corporate orientation of university governing boards, this would do little in and of itself to fix problems such as chronic job insecurity and increasing 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 a state responsibility. However, federal legislation can nonetheless influence universities’ internal resource allocation. The work of the Senate Select Committee on Job Security provides a good starting point.

The committee sought to place responsibility on universities, as public institutions, to achieve positive employment outcomes. It recommended:

“as a condition of receiving public funding, universities […] set publicly available targets for increasing permanent employment and reducing casualisation”.

It also argued the government should legislate to improve the ability of unions to inspect the records of universities with respect to potential wage theft.

Such an approach is well within the remit of government. It could steer universities towards more positive outcomes for employees, students and the broader community. As it stands, university vice-chancellors seem to be saving for a rainy day, when a typhoon is sweeping across the sector.