Even with a potential compromise on the table, the Coalition does not have enough Senate support to get the legislation through

Tony Abbott may have retreated on the GP co-payment and defence wages but, for the time being, the prime minister remains wedded to removing limits on university fees.



This determination to push ahead with the higher education package ignores a simple political reality: after 10 months of public pleading and private negotiations, the government lacks the numbers in the parliament to pursue the sweeping changes. Why else would his education minister, Christopher Pyne, be prepared to contemplate a complicated compromise to constrain exorbitant fee increases that the government previously argued were unlikely under deregulation?

The arithmetic is simple: the government needs the backing of six of the eight crossbench senators to pass the legislation. The Senate has already voted the bill down once. That time the government got four crossbench votes, but they were supporting a “second reading” debate and not necessarily the bill’s passage.

There is no sign that the required six or more crossbenchers are about to embrace the package. Many have pointed out the government has no electoral mandate for the measures described by Joe Hockey on budget night as “once-in-a-generation reforms”. After all, the Coalition explicitly told voters before the election that it would “ensure the continuation of the current arrangements of university funding” and Abbott told universities to expect “a period of relative policy stability”.

So with the package stalled in the Senate, Pyne sent strong signals last week that the government was prepared to make amendments to allay fears about price rises once universities were liberated from fee limits. “A number of proposals, including the submission by Hecs architect Bruce Chapman to the Senate committee, are currently being discussed with crossbenchers,” the minister’s spokesman said.

The government’s existing legislation would cut by an average of 20% the subsidies provided for undergraduate university courses, placing immediate pressure on institutions to increase student fees in a deregulated market simply to make up for lost revenue.

Chapman’s proposal, however, would structure cuts to public funding so as to discourage higher fees. Anyone who has paid income tax would be familiar with the concept of a higher rate in the dollar being paid for amounts above particular salary brackets. Similarly, Chapman’s proposal includes a fee range that would cause zero reduction in the commonwealth funding for a student in that course.

Above a threshold of, say, $6,500, the institution would lose government funding equivalent to a percentage of fees charged above the threshold, perhaps 20%. Higher fees would push the university into higher brackets that increase the marginal funding penalty to 60% or even 80%.

“The basic notion is that if universities choose to increase their prices by high levels there needs to be reduced government subsidies to these institutions as a consequence,” writes Chapman, who spent several days in January working on the proposal with the cooperation of technical staff at the education department.

He says such measures, “if designed well, have a real potential to limit price rises to socially reasonable and fair levels”.

For months, Pyne has criticised “misinformation and outrageous predictions about exorbitant fees” and argued that huge increases were “not possible because the competition won’t allow it to happen”. He told the National Press Club in August that he believed universities would be “very responsible in setting their fees” and told parliament in December that the government did “not believe it should tell institutions how much they can charge for a course”.

But Chapman’s submission identifies clear problems with the market forces the government believed would moderate price rises in the university sector. Full fee deregulation, he argues, “would potentially lead, eventually, to very high course prices”.

Chief among the reasons are the effect of the higher education contribution scheme (Hecs) that Chapman designed in the late 1980s. The income-contingent loans ensure students do not pay any upfront tuition fees, and start repaying their debts only once they are earning about $50,000 or more a year, so the consequences of higher fees will be felt “at least 10 to 14 years in the future” when graduates are well advanced in their loan repayments.

Another reason that price competition between universities could be “quite muted” involves the economic concept known as a “Veblen good”. Chapman explains: “In markets with poor information, such as with respect to the relative quality of universities, the established institutions will likely avoid having low prices compared to their close competitors because doing so can be taken as an indicator of poor quality.”

Chapman told a Senate committee on Friday that his compromise would be better for students than the Coalition’s existing package. And he undercut common concerns about higher fees deterring prospective students from enrolling in further study by saying that demand was “extremely insensitive” in a world of income-contingent loans.

But government’s willingness to consider Chapman’s proposed solution has done nothing to sway the Senate. Labor adapted an Abbott slogan and called it a “great big new student tax” while the Greens said it was “more evidence that deregulation does not work”.

Clive Palmer, who controls two votes in the Senate, ruled out reaching a deal on any university bill unless it increased government investment in the sector. (This is extremely unlikely because the Coalition is trying to find budget savings.)

Other crossbench senators who voted against the bill last time, Nick Xenophon and Jacqui Lambie, said they had not changed their positions. The Family First senator Bob Day voiced his support in principle for Chapman’s idea, but he was already in the “yes” column. The Liberal Democratic senator David Leyonhjelm, ordinarily a supporter of deregulation, described the Chapman compromise as “partial deregulation…a bit of a halfway house” and said while he had an open mind he was “not convinced it’s the solution”.

When Pyne reintroduced the package in December, the minister said he was “a great believer in forward momentum” and did not like taking a step backwards. But as Pyne prepares to deliver the keynote speech to Universities Australia’s annual conference in Canberra on Wednesday, he must surely be wondering whether it is time to concede defeat.