Further education is needed on future funds

Further education is needed on future funds

 

There are far better ways

to spend our endowment,

argues Bill Mitchell.

IN last week's budget Treasurer

Peter Costello created the Higher

Education Endowment Fund

(HEEF), a perpetual endowment

designed to generate earnings to

fund infrastructure for Australian

universities.

It follows last year's decision to

create a Future Fund to fund future

public liabilities. My analysis

applies to both.

The Federal Government builds

these funds by buying financial

assets such as shares in domestic

and off-shore markets. The initial

$5 billion HEEF injection thus

comes at the expense of other

targets of government spending.

The annual REEF earnings will

initially be about $300 million and

will be proportioned to universities

on a competitive basis.

The announcement has been a hit.

The Treasurer claims it will set

Australia up forever" while the

Australian Vice-Chancellors'

Committee said it was "a fantastic

outcome". The academic union also

was "particularly pleased".

So why is it a huge scam?

First, the Federal Government's

claim that it is committed to higher

education is laughable given the last

decade of neglect.

OECD data shows that Australia

performs poorly in terms of funding

higher education and the public

investment share (48 per cent) has

declined significantly since 1996 and

is among the lowest of the OECD

countries (who average 76.4 per cent).

Most of the funding growth for

Australian universities since 1996

has come from increasing domestic

HECS fees and the rapid growth in

non-HECS full-fee enrolments.

Foreign student fees, the most

important source of non-HECS

income, provided 6 per cent of total

income in 1996 but grew to 15 per

cent in 2005.

Federal funding has fallen in real

terms since 1996. The Government

has been privatising the public

university system by stealth rather

than building high-quality

infrastructure.

Second, most people

misunderstand how these

endowments relate to the

Government's spending capacity.

Here we get to the pointy end. The

Treasurer says the HEEF is like a

"bank account" that will enhance

our future. This is highly misleading

and is predicated on the lie that

government faces the same financial

constraint on spending that

households face. It does not.

We all use money issued by the

Federal Government. And we are

required to use this money to

discharge our tax liabilities to

government.

We therefore desire it even

though it has no intrinsic value. In

the past, commodity money like gold

pieces did have intrinsic value.

In a modern money system, the

Federal Government has no greater

capacity to spend money with the

HEEF than if no such fund existed,

just as it has no greater capacity to

spend in the future when it runs a

budget surplus now than when it

runs a deficit.

The Government does not need

revenue and can fund any beneficial

project at any time irrespective of

what has happened in the past.

Households have to finance their

spending. The Government has no

such financial constraint.

This doesn't sanction unlimited

government spending. Spending

drives economic growth but can be

inflationary if the economy is

beyond full capacity. Government

spending should ensure the

economy is at full capacity, but not

go beyond that.

While the Treasurer claims the

HEEF is "saving for the future", it

makes no sense for the Government

to save its own currency.

Households save for future

spending. The Government can

spend any time, irrespective. Worse

still, budget surpluses, by ripping

purchasing power from households,

actually reduce our ability to save.

Moreover, the REEF is built by

government spending rather than

drawing on savings.

It becomes important to focus on

the nature of this spending.

You might think that if the

Government wanted to invest in the

capacities of our people and build a

quality university system then it

could easily spend $5 billion

redressing the decade of neglect.

Universities are in crisis with rundown

buildings, over-crowded

lectures and rising student-staff

ratios.

But in building the HEEF, the

Government is using its spending

capacity to buy financial assets

(speculating in share markets),

which benefits wealthy asset

holders by boosting asset demand.

The annual $300 million that the

REEF will return could have been

spent any time without

unnecessarily tying up $5 billion in

financial assets.

Why not invest $5 billion in

improved port facilities; a national

skills development scheme;

improved public health; better agedcare

facilities; sensible climate

change initiatives; Aboriginal

housing and quality jobs for all?

Any of these infrastructure

projects would be more beneficial

than creating the HEEF.

We are being sold a pup.

Professor Bill Mitchell is director of

the Centre of Full Employment and

Equity at the University of Newcastle.

27936183

Brief: UNINEWC

Copyright Agency Limited (CAL) licensed copy

Newcastle Herald

Tuesday 15/5/2007

Page: 9

Section: General News

Region: Newcastle NSW Circulation: 51,000

Type: Regional

Size: 490.31 sq.cms.

Published: MTWTFSPage

1 of 2

Ref:

NO LIGHT: Universities are in crisis with run-down buildings, over-crowded lectures and rising student-staff ratios

27936183

Brief: UNINEWC

Copyright Agency Limited (CAL) licensed copy

Newcastle Herald

Tuesday 15/5/2007

Page: 9

Section: General News

Region: Newcastle NSW Circulation: 51,000

Type: Regional

Size: 490.31 sq.cms.

Published: MTWTFSPage

2 of 2