Liberal Democratic senator tells Coalition he will not support a deal if it offers too many concessions to the Palmer United party

The Liberal Democratic senator David Leyonhjelm has warned he is prepared to withdraw his support for university fee deregulation if the government offers the Palmer United party (PUP) too many concessions in a compromise deal.



In a sign of the delicate balancing act facing the government, Leyonhjelm expressed fears that too many graduates would be able to avoid paying back their loans, thereby removing pressure on the universities to keep course fees low.

Labor accused the government of trying to “blackmail” Senate crossbenchers after the treasurer, Joe Hockey, said blocking the legislation would not save the sector from funding cuts.

“We’ll find any way we can to take the money out of the universities,” Hockey told the Australian Financial Review on Tuesday.

The government requires support from six out of eight Senate crossbenchers to secure its legislation, which includes a 20% average funding cut to course subsidies, removal of caps on university fees, increases to the higher education loan program (Help) interest rates, and expansion of funding to private colleges and sub-bachelor programs.

The bill cannot pass without the support of the PUP, which has repeatedly stated its firm opposition to the entire package.

The education minister, Christopher Pyne, has drawn comfort from Clive Palmer’s decision to walk away from his previous opposition to other government policies, such as direct action on climate change and financial advice reforms, in return for amendments.

Leyonhjelm, a strong supporter of fee deregulation, warned the Coalition against softening its proposal to shift from inflation to the 10-year bond rate for indexing student loans.

The measure has attracted widespread criticism from the crossbench, the university sector, students and a Coalition-dominated parliamentary committee, because the compounding effect of the higher interest rate would have a disproportionate impact on women and low-income earners.

Leyonhjelm said he believed students should repay loans at the rate the government borrowed the money, and that the commonwealth should also pursue people who moved overseas and recover unpaid Help loans from deceased people’s estates.

“The politics are against that; I acknowledge that,” he told Guardian Australia. “But I guess the issue is that if we end up with a situation where the government is giving ground in order to get this through and the consequence is that the taxpayers are getting screwed and the universities can jack up their fees as much as they like with a lot less pressure to keep their fees low … then my support for these reforms would be brought into question.”

Leyonhjelm said he wanted “the market to work properly” and if too many people were able to avoid repaying their loans then the incentive on universities “to keep their fees down to a competitive level would be lost”.

“The cost is deferred via the Help scheme, but it’s not a proper market if that cost can be avoided in many cases and if that cost can be lumbered on the taxpayer in many circumstances,” he said.

“What I’m concerned about is that if, in the course of negotiating with PUP, too much is given away, the cost will end up falling back onto taxpayers. That is a potential dealbreaker for us.”

Pyne has signalled his willingness to compromise on elements of the legislation in order to secure fee deregulation, with Help loan indexation repeatedly identified as an area for negotiation. The minister also hinted last week that he could delay the implementation in order to strike a deal.

The independent Victorian senator John Madigan told Fairfax Media on Tuesday he had suggested a five-year freeze on Help debts for primary caregivers as part of a potential compromise.

Hockey hardened the government’s message on Tuesday with his suggestion that he would find another way to save money from the sector if the Senate rejected the university bill.

Labor’s higher education spokesman, Kim Carr, said Hockey’s approach to universities was “immoral” and reflected “contempt not just for the parliament but for the universities and all those who benefit from them”.

“In an attempt to spook senators, he’s failed to appreciate that this is likely to be very badly received by senators,” Carr said. “This is not a good cop, bad cop [situation] because there is no good cop with Tory governments which essentially hate universities; they don’t trust universities; they’re hostile to universities.”

Carr said the government would not be able to achieve the same scale of cuts if it attempted to cut research and student support funding without legislation. But he said the “idle threats” could lead to a “brain drain” of bright researchers leaving Australia.

The Grattan Institute’s higher education program director, Andrew Norton, said the government’s options for cutting funding without legislation were limited, but included the research training scheme, joint research engagement, research infrastructure block grants, and sustainable research excellence.

“On the research side, there are quite a few grants funded through the Higher Education Support Act where the legislation sets out a maximum spend but not a minimum spend and the actual spending is done by a ministerial determination. There’s probably scope there to reduce the amount spent,” he said.

“The other thing they can do relates to the funding agreements with the universities which expire at the end of 2016. Although the legislation does not allow the government to reduce the money they receive compared to the previous year it does allow them to freeze the funding level.”

Norton said this was likely to be more politically palatable than cutting research funding, although it would probably result in universities reducing their spending before 2016.

“These are not good options from my point of view,” said Norton, who co-wrote a report for Pyne earlier this year on expanding the demand-driven funding system. “Blocking this [legislation] won’t necessarily prevent cuts; it will just reduce the options for doing this and will force the government into ways that are more damaging overall.”

Belinda Robinson, the chief executive of Universities Australia, said Hockey’s reported comments underscored “the point that successive governments have lacked the appetite to invest in universities at the level needed to assure in the long-term, the quality expected by students and the broader community”.

Robinson called on crossbench senators to pass the bill with amendments “to make it fairer for students and their families”.