Financial Review Higher Education Summit – Keynote address

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Thank you for the opportunity to be with you today.

I also want to thank the Australian Financial Review for hosting this event and Deloitte for their support. It should be an interesting and informative summit. I know you have a number of Chancellors, Vice‑Chancellors and peak body leaders speaking throughout the day.

In my speech this morning I want to outline the current state of play, where we have come from, but also provide some hope and optimism for the future of the higher education sector.

The impact of COVID-19 on higher education

It is an unfortunate sign of the times that this summit is being held virtually, like so many other things at the moment.

Large parts of the country are in lockdown, internal borders are closed, and families can’t travel to see loved ones.

For our universities, I know many campuses are empty and staff are working from home.

I deeply feel for the students.

Year 12 students are about to sit the exams that will set their path for the next year and beyond.  Many are now preparing for those exams in lockdown and learning from home.

Many university students are also learning online and missing out on valuable face-to-face classes. They are also missing those important social interactions with staff and their fellow students. Many clubs, associations and sporting groups are also on hold.

And of course, I feel for the tens of thousands of international students who would normally be here, studying on our campuses, being part of our community and enjoying our enviable Australian lifestyle.

COVID has also hit the finances of most of our universities and non-university higher education institutions, as it has most businesses in the country.

We watch and analyse the figures (that are available to us) very closely. 

My department has now done a detailed analysis on the last audited figures, which were from the 2020 annual reports.  We have also done further analysis on international student numbers.

There are a number of observations I would make from this.

First, the majority of universities entered this calendar year in a relatively strong financial position. In 2020, 25 universities reported surpluses despite the challenges.  Five reported their best operating surplus in the last five years. Ten had surpluses in excess of $30 million.  Seventeen reported deficits.

Overall, the university sector maintained a positive, if reduced, operating surplus of 2 per cent, despite having suffered a decline in revenue of 4.8 per cent, or $1.8 billion.

By the end of 2020, net assets had increased in the sector by 2 per cent on the previous year to $63.1 billion with cash and investments increasing by 9.9 per cent to $24.9 billion.

My second observation is that the greatest initial impact of the COVID pandemic on the university sector was actually from reduced earnings on investments, due to weak global equity markets, rather than a reduction of international students.

From the $1.8 billion reduction in revenue from 2019 to 2020, $1.3 billion was due to reduced investment earnings.  Investment earnings were down 57 per cent on 2019 (which was a very strong year for earnings).

In comparison, at the end of 2020, international student numbers in higher education were down by 5 per cent on 2019.  Even now, in mid-2021, they are still down only 12 per cent compared to the record highs seen in 2019.

Third, despite the aggregate financial numbers being better than we expected, there is considerable variance across the university sector. 

Those universities that maintained relatively good investment income and were predominantly reliant on Chinese students, as opposed to students from other countries, have maintained very strong financial positions.

Of course, being so reliant on one country adds financial risk, reduces the diversity in university classrooms, and consequently can negatively impact the experience for both Australian and international students.  But during the pandemic to date, if you mainly enrolled Chinese students, you maintained a stronger financial position.  This has certainly been the case for a university like Sydney.

The commencement numbers bear this out as much as the overall enrolment numbers. Higher education commencement numbers from Chinese students are up 9.5 percent on last year, while Indian students are down 55 per cent and Nepalese students are down 40 per cent.

The university with the largest revenue decline in 2020 compared with 2019 was ANU at 14 per cent.  Most of this was from a decline in investments and if staff costs had not increased, ANU would still have been in surplus.

I have focused here on universities, but the private higher education providers have been impacted far greater than the public universities, with the English language providers particularly so.  Many of these providers don’t have the numbers of domestic students to balance out their revenue, and mainly offer courses of shorter duration than the universities, which means they are more quickly hit by reduced commencement numbers. 

This is why the Government had a specific support package for those providers, separate to that provided to the universities.

My final observation, based on our analysis of the financial data and international student data, is that even if international students roared back in 2022, the impact of the massive decline in commencing students (36.5 per cent since June 2019) will still be felt for several years. 

Support for the higher education sector

The Government has already provided significant support to the sector and we continue to do so – both to weather the initial storm and to ensure we emerge from the pandemic with a stronger and more resilient higher education sector.

The financial figures that I have just taken you through are better than most expected in part because of this support. 

The support started almost immediately after the pandemic was declared and has continued since.

In April 2020, the Government guaranteed Commonwealth Grant Scheme and HELP funding streams for higher education providers at their then current levels for the remainder of 2020, irrespective of a fall in domestic student numbers.

When you take into account these guarantees and the continuing flow of investment in research, the Commonwealth effectively put a floor under half of the revenue streams to universities in 2020.

Between May and December of 2020, we provided funding for short, online courses to help Australians retrain.

Last October, we provided an extra $1 billion research funding for 2021.  And a further $550 million to tertiary education providers to provide short courses and 12,000 new undergraduate Commonwealth supported places.

In April this year, we announced $53.6 million of targeted support for international education providers hardest hit by COVID-19 and encourage providers to refocus their business models on Australian students and expand online and offshore course offerings.

This included further FEE-HELP loan fee exemptions for about 30,000 existing and prospective students.

Importantly, we have also provided regulatory flexibility, particularly in relation to visa conditions to enable services to continue to be provided.

That flexibility will continue to apply as long as travel restrictions are in place.

I know JobKeeper is a sticking point for many in the sector.

To be clear - universities were not prohibited from accessing JobKeeper.

JobKeeper was there as a safety net, in addition to the significant supports I have just outlined.

The Government simply put in place rules that were specific to universities because universities are majority funded by the taxpayer and have longer revenue patterns than the month-to-month of most businesses.

Where to from here?

As I mentioned above, we continue to monitor very closely the financial situation of the universities and private higher education providers and the forward trends that we see.

I have specifically requested the 30 June 2021 figures from the universities to see what further impact has occurred.

Beyond the support and regulatory and visa flexibility that I have outlined, there are short and medium term initiatives being developed that should give optimism to the sector.

In the short term, the effort is being undertaken to get international student pilots up and running. 

I have received very good International Student Arrival Plans from South Australia and New South Wales approved by both Premiers and Chief Health Officers.

New South Wales is obviously now focused on the current outbreak and getting out of lockdown.

The timing of arrivals in South Australia will need to be worked out by the State Government, in consultation with federal agencies.  Having spoken recently to the South Australian Premier, I know they are still keen to get this going.

Next is the National Plan for getting back to normal life, which includes students returning in larger numbers.

As our vaccination rates continue to increase, so too will our ability to welcome back international students.

The next milestone we need to reach is 70 per cent of the eligible population fully vaccinated – that will take us into the transition phase where we can allow greater capped entry of student visa holders, subject to quarantine arrangements and availability.

We are getting there and our vaccination rates are increasing. We’ve already administered more than 15 million doses and we are now hitting around 1.5 million doses each week. Almost 50 per cent of people are already protected with a first dose and more than 25 per cent of people are fully vaccinated.

When our borders start to open, I am confident that students will return in significant numbers.  The international student experience data that I released recently supports this conclusion, showing that 91 per cent rated their  overall living experience in Australia highly.

Of course when student numbers do come back, we need to do it differently:  to get greater diversity, to have better alignment with skills shortages, and to ensure that the student experience of international and Australian students is maximised.

I also believe in the medium to long term, that there is an enormous opportunity to reach new markets with different models of offerings at different price points - from pure online, to on-campus learning offshore, to shorter stints in Australia, to microcredentials etc.

Other countries are going down this path.  The UK has 58 per cent of its international students studying offshore with different models of learning, whereas Australia has 20 per cent. 

The demand from developing countries for quality higher education is enormous. It cannot be reached by all those students studying full time in wealthy countries, but nor do those developing countries always have the capacity in their own institutions.

The opportunity is there to expand our market, and also assist with the development of those countries.

The Government is currently considering advice that’s recently been received from the Expert Members of the Council for International Education that go to these issues, and I thank the 1,600 people who engaged in the consultation process.

Let me finally say that we continue to work on our Research Commercialisation agenda.

Our ambitions are significant in this area.  We want to see Australia to be more like the United States or Israel, where our universities produce not only great pure research, but then translate this into real-world benefits for Australia, and in doing so, help create the jobs of the future.

I mention this in today’s context because this can not just be critical for our long term economic success, but part of our COVID recovery. 

Conclusion

Thank you for your time and the opportunity to speak on this important topic.

These are tough times for everyone.  But there are many reasons to be positive in the future. 

I look forward to continuing to work with the sector on these challenges.