Australian universities’ finances increasingly ‘on thin ice’

Australia’s universities are operating on “increasingly thin margins” while being asked to do more, according to the sector’s representative body.

Universities Australia (UA) says almost half of its members have spent most of the past five years in deficit and real average student funding has plunged by 6 per cent over the past nine years.

Despite this, universities are being leaned on to help meet a target for 80 per cent of Australians to have tertiary qualifications by 2050.

“There’s a myth that universities are awash with money,” said UA chief executive Luke Sheehy. “At some point the maths catches up. You can’t ask universities to educate more students, deliver more research and drive productivity while steadily reducing funding per student.”

UA has used its annual conference in Canberra to launch a report examining the “highly unstable operating environment” the sector has endured for almost a decade. It follows claims in the Sydney Morning Herald that the country’s universities shared a A$2.1 billion (£1.1 billion) surplus in 2024, the most recent year for which financial accounts are available, and their protestations of underfunding stemmed from “simply poor management”.

The SMH is not alone in questioning universities’ underfunding claims. University of Sydney sociologist Salvatore Babones has accused UA of injecting “self-serving errors” in its “log of claims against the public purse”.

For example, Babones says, criticism of Australian government research funding “has more to do [with] low spending on defence than low spending on universities”.

UA said universities had “long spent more on research than they receive in research income”. And the A$2.1 billion surplus became a A$972 million deficit when one-off windfalls like “unusually strong” investment earnings were removed.

“Sector wide figures…mask large differences between institutions,” the report says. “Many universities face tight liquidity, reduced capital spending and high salary-to-revenue ratios.”

UA said salary costs had risen faster than inflation, as universities boosted staffing levels and converted casual roles to “more secure” employment. “Meanwhile, capital spending remains below pre-pandemic levels, making it harder to invest in facilities, laboratories, digital systems and student infrastructure.”

It said funding and student places had also become “badly misaligned”. About 16,000 students across 14 universities attracted no government subsidies in 2024, while other universities received their full complement of teaching grants despite falling about 17,000 students short of their recruitment quotas.

“These aren’t accounting quirks,” Sheehy said. “They determine who gets access to opportunity. If we want a fair, efficient and sustainable system, funding must reflect where students actually study.”

The report says that for the past three decades, growth in international enrolments has supported “unfunded and underfunded” expenses including research, infrastructure, compliance and teaching of unpopular disciplines. But “policy volatility and public debate” have “created uncertainty” around future growth in overseas student recruitment.

“International education [has] helped keep the system afloat as domestic funding has fallen in real terms,” Sheehy said. “That’s not ideology – that’s arithmetic.”

The conference heard that Australian higher education had survived on a “growth mindset” for much of its history. The sector had been structured around “the assumption that there will always be growth”, said Gwilym Croucher, deputy director of the University of Melbourne’s Centre for the Study of Higher Education.

International enrolment growth is no longer guaranteed, Croucher pointed out. “If there is going to be a trade-off, what is the trade-off? What doesn’t get funded? How can we continue to ensure that we can deliver education in the places we need around the country, and that we don’t end up just concentrating in the big metros? They’re the kind of tough questions we’re going to need to deal with.”

Meanwhile, education minister Jason Clare has announced a “working group” to lighten universities’ compliance load. “We’re looking at practical, commonsense actions that we can implement pretty quickly,” Clare said.

The new body, to be co-chaired by UA and the Department of Education, is expected to meet roughly once a month for the remainder of the year. In return, universities will be expected to enact “important” governance improvements including more transparency around vice-chancellors’ pay and spending on consultants.

“This working group will look at ways to streamline processes and remove unnecessary duplication, while ensuring that universities meet the standards that the whole community expects,” Clare’s office said.

UA said the move was a step in the right direction. “Australia’s universities have been calling for regulatory relief,” Sheehy said. “The increasingly complex, overlapping and costly compliance environment we operate in is a distraction from the main game.”

john.ross@timeshighereducation.com