Canberra nets Pounds 1bn profit from degrees

August 4, 2000

Australian graduates are not the only ones to benefit financially from their degrees: the federal government makes a "profit" of A$2.7 billion (Pounds 1.04 billion) a year from its investment in higher education, according to a report by the University of Melbourne's Institute of Applied Economic and Social Research.

The report says that the average Australian graduate with a three-year degree will earn almost A$300,000 more over a lifetime than someone who only completes secondary education.

The extra money graduates earn is after costs - such as lost income from being out of the workforce while studying, tuition charges and purchases such as books - have been deducted. The report says this is equivalent to a 15 per cent rate of return, "making it a very good investment".

But the Australian government does even better. The report says the introduction of the Higher Education Contribution Scheme, under which students must pay a proportion of the cost of their tuition, plus the taxation revenue raised from graduates' higher incomes, provides the government with about A$2.7 billion more than it allocates to the universities.

And while federal outlays look set to remain fairly constant, the Melbourne economists estimate that this surplus will increase to A$4 billion by the end of the decade. "Investment in education can be viewed like other investments and evaluated for its rate of return," the report says. "Individuals can then compare the rate of return with the rate of interest to decide whether it is a good investment. And society can compare the social rate of return from higher education with other possible uses of funds."

After surveying literature on research expenditure, the report says this type of investment similarly provides benefits and that the social rates of return on investment in research are also high.

The report argues that investment in higher education "yields high returns to individuals, society and the government, and that there may be a case forI policies to increase the investment in higher education in Australia".

In a boost to the staff union's campaign for higher wages, the report notes that higher salaries for academics are a key determinant of the quality of education.

But quality will only be improved by the provision of additional resources if "the right administrative and incentive structures are in place".

The report concludes that more evidence is needed about marginal rates of return with respect to different types of education expenditure. It suggests, however, that investing in the quality of education may be an important priority.

Sally Walker, Melbourne's acting vice-chancellor, said the report contributed to the debate about the value of higher education. "While the high demand for higher education tells us that it is valued, its economic benefits have not previously been well documented," Professor Walker said.

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