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University fee deregulation to drive up the deficit: analysis

Ben Phillips of the National Centre for Social and Economic Modelling.
Ben Phillips of the National Centre for Social and Economic Modelling. Photo: Richard Briggs

The Abbott government's  plan to deregulate university fees would likely drive up inflation and drain billions of dollars from the budget over the long term rather than saving taxpayers money as originally intended, according to one of the nation's top economic modellers. 

The analysis, presented to an off-the-record forum attended by parliamentarians and policy experts last week, has hardened the stance of key Senate crossbenchers whose votes will be crucial for the government to achieve its aim of passing higher education reform by March.

Illustration: Ron Tandberg.
Illustration: Ron Tandberg. 

The government has already slashed the estimated savings from its higher education changes from $4 billion over four years to $640 million through concessions aimed at winning crossbench votes.

Ben Phillips, principal research fellow at the National Centre for Social and Economic Modelling (NATSEM), said he would expect any remaining savings to be overwhelmed by the cost of bad loans and a jump in inflation triggered by higher fees within a decade.

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The inflation rise would have a knock-on effect on the budget through higher benefit payments linked to the consumer price index, Mr Phillips said.

"Only under the most optimistic fee scenarios would it be likely that the proposed package would save the government money in the future," Mr Phillips told Fairfax Media. "The fiscal outcome is not likely to be a deficit reduction measure. Rather it would increase the deficit into the future."

The CPI is calculated using a combination of household expenses including food, clothing, housing, health and education.

Mr Phillips said a 50 per cent increase in student fees – which he described as a cautious estimate – would lead to an approximate 0.7 percentage point increase in the CPI. This would cost the budget approximately $1 billion extra a year in payments to welfare recipients including pensioners, carers and the disabled.  

Mr Phillips presented his analysis to an invitation-only forum at the University of Canberra last week whose attendees included crossbench senators David Leyonhjelm and Ricky Muir. 

The Grattan Institute's Andrew Norton agreed that higher university fees would boost the CPI and consequently the cost of government benefits.

Mr Norton, a former adviser to Education Minister Christopher Pyne, said the government should examine excluding higher education fees from the consumer price index it uses to index government benefits. 

The government currently writes off some 17 per cent of student loans a year, worth around $1 billion, in anticipation of debts that will never be repaid - an amount expected to increase under fee deregulation. 

Senator Leyonhjelm, originally a supporter of the government's reforms, said he found the NATSEM analysis concerning.

"My rule is that I won't vote for anything if it will cost taxpayers money - someone has to stop taxpayers being screwed," he said.

Senator Muir said he was also worried by the analysis. "This is one of many reasons why it is so important that alternatives to deregulation are fully explored," he said, referring to an upcoming Senate inquiry he has co-sponsored. 

Independent Senator Nick Xenophon said: "This is what happens when you do policy on the run driven by ideology rather than a thoughtful process."

The government's commission of audit found the budget would not benefit from higher fees and could be left worse off because of an increase in bad loans. 

A spokeswoman for Finance Minister Mathias Cormann said: "The budget impact of our higher education reforms has been costed by Finance taking all relevant considerations into account.

"We do not agree that our higher education reforms will lead to the sort of fee increases some have suggested.

"Competition between higher education providers will see many students paying less than they do now for their education as the government supports more higher education options."

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