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Tertiary Education Report: Budget 2011 – strategic choices
Executive Summary
This briefing discusses what we see to be your key strategic choices for Budget 2011.
It also outlines other initiatives and cost pressures you might wish to consider as part of
your Budget package.
We are seeking your feedback on these, and we will incorporate your views into two
strategic documents that are due on 1 December: your Four-Year Budget Plan for
Budget 2011, and your letter to the Prime Minister setting out your priorities for tertiary
education.
We expect that the overall shape of your tertiary education package for Budget 2011
will be similar to Budget 2010’s. That is, you will have decisions to make about demand
and cost pressures – such as fee increases, and the price and volume of SAC-funded
EFTS – in the context of savings from student support. In the first instance we will be
focusing our advice on how you can achieve a balanced budget package without new
funding. We expect indicative operating allowances for Budget 2011 will be announced
shortly.
Following your feedback on this paper, we will advise you over the next two months on
the details of your strategic choices and other initiatives, to allow you to have a draft
Budget package in place by the end of the year. You have already signalled an interest
in some of these initiatives, such as ESOL for Refugees
[2]
[2]
Recommended Actions
We recommend that you:
a.
note that Four-Year Budget Plans for Budget 2011, covering both capital and
operating, are due to be submitted to the Minister of Finance by 1 December
b.
note that the Prime Minister has asked you to write to him by 1 December setting
out your priorities for tertiary education
c.
provide feedback on your strategic choices (paragraphs 8-33) and potential
initiatives for Budget 2011 (paragraphs 34-48)
d.
note that we will incorporate your feedback on your strategic choices into your
Four-Year Budget Plan for Budget 2011 and your letter to the Prime Minister on
your tertiary education priorities
1
e.
indicate any other initiatives you wish to consider for Budget 2011
f.
note that we will advise you over next two months on your strategic choices and
other initiatives, to allow you to have a draft Budget package in place by the end
of the year
g.
discuss this briefing with officials.
Dr Andrea Schöllmann
Group Manager
Tertiary Education
NOTED
Hon Steven Joyce
Minister for Tertiary Education
__ __/__ __/__ __
2
Tertiary Education Report: Budget 2011 – process and strategic
choices
Purpose of Report
1.
This briefing discusses what we see to be your key strategic choices for the
Budget (which will also inform your letter to the Prime Minister setting out your
priorities for 2011), and sets out other initiatives and cost pressures that you
might wish to consider as part of Budget 2011. It also covers briefly the expected
process and timeframes for Budget 2011.
Strategic decisions – Budget 2011 and beyond
Four-Year Budget Plan and Letter of Priorities
2.
The key initial deliverable for Budget 2011 is a Four-Year Budget Plan, covering
both operating and capital expenditure, which Ministers are expected to submit to
the Minister of Finance by 1 December. These Plans are expected to take a
strategic, medium term view (i.e. 2012/13 and beyond) of expenditure. They will
identify reprioritisation options and where efficiency gains will be made, and the
areas of lowest priority spending within Votes, including programmes that are of
low value or not achieving their objectives.
3.
The Prime Minister wrote to you on 14 October asking for a response by 1
December 2010 that identifies:
“progress against the priorities [your predecessor] specified last December
your proposed priorities for 2011, and the medium term, and what impact
they will have
how and when you propose to achieve them, including any legislative
implications.”
4.
We will incorporate your feedback on the strategic choices discussed in this
paper into both your Four-Year Budget Plan for Budget 2011 and your Letter of
Priorities for the Prime Minister. We will also ensure that your feedback is
incorporated into your Cabinet paper on tertiary education system changes in the
next three to five years, a draft of which is currently with you for consideration
(metis 474752 refers).
5.
We will advise you on specific policy choices for Budget 2011 over the next two
months (see table 1 on page 11) to allow you to decide on a draft Budget
package by the end of the year. This can then be refined through to March 2011.
Although we do not expect all the details of your budget package to be finalised
by the time Four-Year Budget Plans are due to the Minister of Finance, we would
expect your Four-Year Budget Plan to outline your strategy for Budget 2011 (and
beyond) and the key policy changes that you intend to pursue.
3
The value for money of tertiary education expenditure – current assessment
6.
We have provided you with a report, concurrent to this briefing: Outputs and
Outcomes of the Government’s Tertiary Education Expenditure 2005-2009 (metis
514806 refers). This report analyses the inputs, outputs, and outcomes of eight
key tertiary education funds – around $4.3 billion in total – between 2005 and
2009. The findings of the report are summarised in Appendix 1. We will also
incorporate the report’s findings into your Four-Year Budget Plan for Budget
2011.
7.
The analysis in the report gives a mixed impression of the value for money of
Government’s tertiary education expenditure. The data suggest that the value for
money of some areas of expenditure (SAC; Youth Training) has been maintained
or improved. The value for money of other areas of expenditure (student support;
the Industry Training Fund) has decreased. We expect that recent decisions
(such as the introduction of performance-linked funding from 2012, and changes
to how the TEC manages Industry Training) will improve the value for money of
tertiary expenditure.
Your strategic choices for Budget 2011
8.
We expect that the overall shape of your tertiary education package for Budget
2011 will be similar to Budget 2010’s. That is, you will have decisions to make
about demand and cost pressures – such as fee increases, and the price and
volume of SAC-funded EFTS – in the context of savings from student support. In
the first instance we will be focusing our advice on how you can achieve a
balanced budget package without new funding. We have identified key policy
decisions and other initiatives/cost pressures for Budget 2011, and these are
outlined below.
9.
Budget 2011 is an opportunity to further progress the priorities of the Tertiary
Education Strategy. The Strategy’s priorities set out how the Government will
ensure the tertiary system achieves the best return on the public’s investment by:
increasing the number of young people (aged under 25) achieving
qualifications at levels four and above, particularly degrees
increasing the number of Māori students enjoying success at higher levels
increasing the number of Pasifika students achieving at higher levels
increasing the number of young people moving successfully from school
into tertiary education
improving literacy, language, and numeracy and skills outcomes from levels
one to three study
improving the educational and financial performance of providers
strengthening research outcomes.
10.
The range of initiatives outlined below will contribute to achieving the Tertiary
Education Strategy priorities. You have choices about which priorities you
advance through this Budget and which you wish to progress in the longer-term.
Your Four-Year Budget Plan and your priorities letter to the Prime Minister are
opportunities to discuss how you will achieve the Tertiary Education Strategy
priorities, and over what timeframe.
4
11.
For example, you might wish to progress the priority of increasing the number of
young people studying at level four and above, particularly degrees, in Budget
2011 through your decisions about SAC-funded places in 2012 and beyond, and
by progressing the Government’s commitment to additional medical student
places.
[2]
You also
have choices about the phasing of work to improve the overall return on the
public’s investment in tertiary education, such as through changes to student
support and fees policy.
12.
There are longer-term strategic issues in the tertiary education sector, which will
also progress the priorities of the Tertiary Education Strategy, in addition to those
identified below. These are unlikely to be a central part of Budget 2011, but will
be canvassed in your Four-Year Budget Plan and your Letter of Priorities to the
Prime Minister.
[2]
13.
Your Four-Year Budget Plan and your Letter of Priorities could, if you wished,
discuss some of the longer-term options for tertiary education funding that are
included in your draft three-to-five year Cabinet paper, such as a life-time
entitlement to tuition subsidy funding to manage demand.
SAC-funded places for 2012
14.
You have decisions to make in Budget 2011 about the number of EFTS to fund
for 2012 and whether to increase the price at which the Government purchases
SAC-funded places.
15.
As we advised you in August, demand for tertiary education is forecast to decline
over the next few years, with overall demand expected to be about 2 percent
above the funded baseline in 2012 and at funded baseline levels in 2013. Within
this overall trend, demand for university and PTE places is expected to decline,
but still be above the funded baseline in 2012 and 2013, whilst demand at ITPs
and wānanga is forecast to be below the funded baseline from 2011 onwards.
16.
Your recent decision to purchase 2,900 additional EFTS at undergraduate level
at universities, spread over 2011 and 2012, will go someway to meeting demand
for university places above and beyond the funded baseline for 2011 and 2012.
You have also signalled to Cabinet your intention to review university allocations
as part of Budgets 2011 and 2012 in light of updated tertiary demand forecasts
and make reallocations between subsectors if necessary. As well as the option of
reallocating tertiary places to match trends in subsector demand, you also have
the option of purchasing additional places to meet expected demand for
university places for 2012 and 2013.
17.
You also have decisions to make about whether or not to increase the price at
which the Government purchases SAC-funded places, in response to increases
in providers’ costs. You will need to consider this alongside policy decisions on
fees policy for 2012 and beyond (discussed below). As we advised you in the
course of Budget 2010, Government can address cost pressures that providers
might face through increasing the price it pays for EFTS, allowing providers to
increase fees, or a combination of both. Allowing providers to increase fees is
5
more cost- effective for Government, since the cost to the Government is the
initial write-down of student loans.
18.
If you did wish to consider increasing the price paid for SAC-funded places, you
could approach this in different ways. For example, you could consider increasing
the price at which the Government purchases EFTS from specific subsectors
(such as PTEs), or at specific levels of study.
19.
We will provide you with detailed advice in November on your options.
Fees policy for 2012
20.
As part of Budget 2010, Cabinet agreed to allow for a 4 percent increase in fees
and course costs for 2011 until 2013. Additional funding of approximately $10m
opex and $20m capex would be needed to maintain the 4 percent increase
beyond 2013. You will also need to consider whether the AMFM should increase
further, above and beyond the 4 percent increase. As noted above, allowing
providers to increase fees to address their cost pressures is more cost-effective
for the Government than increasing subsidy rates.
21.
We will also advise you in November on options for allowing some providers to
increase their fees as a "catch-up", where their fees are lower than those for
similar courses at other providers. Under the current regulations, providers with
fees that are well below the maxima can only raise their fees incrementally.
22.
We will also provide advice on the costs associated with voluntary student
membership (subject to the enactment of the Education (Freedom of Association)
Bill 2009). This change would mean that students will no longer be able to borrow
through the compulsory fees component of the student loans scheme for
students’ association membership fees. However, it is possible that providers will
increase their student services levies (which students will still be able to borrow
for through student loans) to continue to purchase similar services from students'
associations.
Student support savings
23.
Budget 2010 introduced a package of changes tightening eligibility for student
loans. For Budget 2011 we recommend that the main focus be on improving
collection of student loan repayments. This is consistent with Cabinet's decision
in June 2010 that Inland Revenue adopt a more proactive, commercial approach
to recovering overdue student loan repayments from overseas-based borrowers,
initially in Australia.
Improving the collection of student loan repayments
24.
We will advise you in early November on options within two broad approaches to
improving collection of student loan repayments:
increasing repayment obligations for those already meeting repayments
broadening the base, by increasing the range of people who have a
repayment obligation through:
i.
expanding the types of income that are subject to student loan
repayments, such as [2]
6
ii.
25.
[2]
The savings from changes intended to improve collection of student loan
repayments could vary greatly depending on the options, if any, that you wish to
pursue, and the timing of their introduction. [2]
Restricting eligibility for further student loans for borrowers who have outstanding
student loan repayments
26.
We will also advise you shortly on the option of preventing borrowers with
overdue student loan repayments from taking out a new student loan for further
study. Currently student loan borrowers are able to take out a new loan for further
study regardless of whether they have met repayment obligations on previous
student loans. In total approximately 4600 current borrowers have taken out new
loans while having outstanding repayment obligations.
27.
Restricting eligibility for further student loans where borrowers have outstanding
repayments on previous loans would support Government’s objectives for student
support by improving equity, encouraging compliance (particularly for overseasbased borrowers) and minimising perverse incentives, and improving asset
management.
28.
If you are interested in pursuing this, it is likely to create some relatively small
savings in Budget 2011. The key benefit of any change would be the signalling
effect, rather than the amount of savings it would provide.
[2]
29.
[2]
30.
[2]
Industry training
31.
You have indicated to Cabinet that you will be considering the appropriate size of
the Industry Training Fund for 2012 and 2013 onwards as part of Budget 2011
(and Budget 2012 if necessary). This work will take into account forecast future
demand for industry training, as well as the need for an industry training system
which offers good value for money and outcomes for the training purchased.
7
32.
The work will also take into account decisions that have been taken regarding
industry training including:
Cabinet’s decision that from 2012, Industry Training funding will no longer
be available for short duration health and safety and regulatory compliance
programmes that are the normal responsibility of the employer in providing a
safe workplace (CAB Min [10] 36/5 refers)
your decision to make policy changes to industry training, to introduce a
minimum industry cash contribution by industry to each ITO of 30 percent
from 2013 onward, and introduce tighter constraints around the
programmes that will be funded at levels 1-2 (S/10/01428 refers)
the ongoing implications of changes to the TEC’s operational policies for
industry training funding that address performance issues with ITOs.
33.
The TEC will provide you with further advice on this work in late November.
Other initiatives and cost pressures
34.
As well as strategic choices for Budget 2011, we have also identified a handful of
relatively small initiatives and cost pressures for Budget 2011. We have already
advised you of some of these; you will receive advice on others in the next month
or so.
International education
35.
Cabinet has agreed in principle [CAB Min (10) 36/6 refers] to your proposal for
the establishment of a Crown Agent for international education. This entails the
reallocation of $11.45 million in 2011/12 onwards, and an additional $10m in
funding for international education promotions (to be sourced from the Prime
Minister's Emerging Priorities Fund). As Cabinet had yet to approve this funding
when this briefing was drafted, we have included this $10m in our outline of a
Vote Tertiary Education package (see table 1).
36.
We will advise you in late October on options for a cap on SAC-funded
international PhD EFTS from 2012. Depending on your decisions, this proposal
could result in savings from Vote Tertiary Education from 2011/2012 onwards.
ESOL for Refugees
37.
We will report to you by the end of October on how recent tertiary funding
changes have affected provision for refugees and migrants, including ESOL, and
on options for meeting their English language needs in the long term. This advice
is likely to recommend the creation of a separate stream of funding for refugees
and will canvass option such as an exemption for refugees to time limits on
allowances. Depending on your decisions in response to this advice, changes
could cost in the vicinity of $2m-$3m per annum.
[2]
38.
[2]
8
[2]
[2]
39.
[2]
[2]
[2]
40.
[2]
41.
[2]
42.
[2]
[2]
43.
[2]
44.
[2]
Additional medical student places
45.
The Government has a manifesto commitment to fund 200 additional medical
places over 5 years. Eighty places have been funded so far – 60 in Budget 2009
and 20 in Budget 2010. The 20 places funded in Budget 2010 cost $7.0m in
operating and $1.8m in capital over four years, and were funded through savings
within Vote Health. You might wish to discuss with the Minister of Health whether
some or all of the remaining 120 places will be funded in Budget 2011.
9
46.
The cost of proceeding with the remaining 120 places would depend on the time
period over which the new places were introduced. The capacity of the medical
schools to take on additional students would need to be considered in deciding if
and when the additional places would be funded.
[2]
47.
[2]
48.
[2]
Table 1: Timeframes for advice on Budget 2011 decisions and initiatives
Policy Area
Indicative cost per
annum/(savings)
[2]
Timeline for advice
International education –
international promotions and
International PhD cap
ESOL for Refugees
Fees
$10m for promotions
$(TBA) for international
PhD cap
$3.0m
$30m from 2014 to
maintain 4% AMFM
Promotions: Agreed in principle by
Cabinet
PhDs: Late October
Late October
November
Student support savings
SAC funding – price/volume
ITF
[2]
TBA
TBA
November
November
Late November
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
Budget 2011: process overview
49.
It is our understanding that Cabinet will agree to the specifics of the Budget 2011
process on Tuesday 26 October. In the meantime, the Treasury has distributed
initial advice on processes, deliverables (such as Four-Year Budget Plans), and
timeframes.
Indicative timeframes
50.
The expected process and timeframes for Budget 2011, as provided to us by the
Treasury, is as follows:
Budget Ministers set indicative allocations for the operating allowance
(October)
Four-Year Budget Plans, covering both capital and operating, are submitted
to the Minister of Finance (1 December)
10
Budget Ministers consider Four-Year Budget Plans and make initial
decisions on both capital and operating (mid December)
Cabinet considers major policy proposals, as identified by Budget Ministers
(January-March)
final Budget Cabinet paper (April)
production phase (April-May).
Vote Tertiary Education: implications
51.
Cabinet recently agreed to separate Vote Education into two Votes [CAB Min (10)
30/4A refers], in line with the pre-existing Ministerial responsibility for
appropriations. We do not expect this change to have any substantive effect on
the tertiary education budget policy process. It will mean minor differences in
administration of the education budget, such as stand-alone tertiary education
Estimates.
52.
We are currently considering how best to phase the shift to Vote Tertiary
Education in the context of Budget 2011. The Four-Year Budget Plan will be
structured in line with current appropriations, but will note that Vote Tertiary
Education will be in place for the 2011/12 year.
Youth Guarantee
53.
The Minister of Education has responsibility for implementing the Youth
Guarantee but parts of the initiative are purchased through tertiary education
appropriations.
54.
The Minister of Education took a paper to Cabinet in early September that
included a commitment to investigate combining existing expenditure on Youth
Training,
[2]
, and existing Youth
Guarantee places to increase the number of fees-free tertiary places.
55.
We intend to seek the agreement of Ministers of Education, Tertiary Education
and Finance in November to a preferred option to increase the number of fee-free
tertiary places under the Youth Guarantee.
11
Appendix 1: Summary of the value for money of tertiary education expenditure
Tuition subsidies ($1,853 million in 2009)
56.
The return on the Government’s investment in tertiary education subsidies has
improved between 2005 and 2009. Total Student Achievement Component has
increased in real terms (9.4%) driven in part by a moderate increase in the
number of equivalent full-time students (4.2%) and by a greater proportion of
enrolments in higher cost courses. Whilst the five-year completion rate for SACfunded qualifications increased by 1 percentage point between 2005 and 2009, a
greater proportion of SAC-funded qualifications were awarded to students aged
under 25 and studying at level 4 or higher. A greater proportion of Māori or
Pasifika students completing SAC-funded qualifications were also studying at
level 4 or higher – in line with the priorities of the Tertiary Education Strategy.
57.
In 2009, the value of successful course-level study per dollar of government
expenditure was higher than in 2005. This result was mainly due to the level of
over-delivery in 2009, which in turn was influenced by the effects of the recession
on enrolments.
58.
We would expect to see the cost effectiveness of the SAC improve with the
introduction of performance-linked funding for providers, with 5 percent of SAC
funding contingent on performance benchmarks for qualification completion,
course completion, and students progressing to further study.
Performance-Based Research Fund (PBRF) ($239 million in 2009)
59.
There has been a substantial increase (45%) in PBRF funding over the last five
years in real terms. Over the same period postgraduate qualification completion
rates have risen – the 8 year completion rates for PhDs improved by 17 percent
between 2005 and 2009. The rate of citation of indexed publications by authors
from New Zealand tertiary education institutions has also improved by six percent
over the same period.
Industry Training Fund ($158 million in 2009)
60.
There has been a substantial increase in funding allocated to the Industry
Training Fund over the last five years in real terms (32%). The increase in
funding has allowed a substantial increase in the volume of trainees. Much of the
increased volume went into retaining trainees in the system, rather than being
focussed on new trainees. However, as noted in your recent Cabinet paper,
“Refocusing industry training funding and responding to demand in the university
sector”, the economic downturn has led to decreasing demand for industry
training over the last two years, and lower demand is expected to continue in
20111.
61.
Whilst the number of credits attained by trainees has increased in total between
2005 and 2009, the number of credits attained per Standard Training Measure
has fallen. The number of credits attained per $1000 of real government
1
The trend occurred despite the introduction of new industry training requirements in real
estate, which reduced the extent of the downfall. In addition, some ITOs (such as flooring and
hospitality) continued to recruit trainees, but shifted their focus from young to older workers,
reflecting the fact that unemployment was disproportionately high among the young. In effect,
these changes masked the extent of the downturn in training in other ITOs.
12
expenditure fell by 9.8 percent. On the other hand, both programme and
qualification completion rates have generally been increasing over the last five
years.
62.
TEC’s changes to industry training funding regulations from 2011, reducing
government over-funding of trainees, will improve the cost effectiveness of the
Industry Training Fund.
Modern Apprenticeships ($43 million in 2009)
63.
The total amount of funding allocated to Modern Apprenticeships has increased
by almost 50 percent between 2005 and 2009. The number of trainees has
increased significantly, and the number of credits attained has increased
significantly in line with this increase in trainee numbers. The number of credits
attained per Standard Training Measure is slightly higher in 2009 than in 2005,
and the completion rate of programmes and qualifications has increased over
time.
64.
However, the number of new trainees commencing a Modern Apprenticeship
declined sharply in 2009, reflecting the impact of the recession.
Training Opportunities ($85 million in 2009)
65.
Total funding allocated to Training Opportunities has decreased slightly in real
terms between 2005 and 2009. The number of placements has also decreased
over the last five years, as the employment market has changed and as the
criteria for acceptance into the programme have changed.
66.
The number of credits attained has fallen between 2005 and 2009. Although
trainee numbers also fell, the number of credits attained per $1,000 of real
government expenditure was lower in 2009 compared with 2005.
67.
The two month post-study outcomes for placements have seen the proportion of
students who do not find employment or undergo further training remain relatively
constant at around one in five. However, with the onset of the recession there
has been a decrease in the proportion of trainees in employment and an increase
in the proportion of trainees in further training.
68.
From 2011 40 percent of Training Opportunities funding will be administered by
the Ministry of Social Development, and will be for short, employment-focussed
training programmes. The remaining 60 percent of funding will continue to be
administered by the TEC, largely in longer courses of study.2
Youth Training ($58 million in 2009)
69.
2
Total funding allocated to Youth Training fell in real terms (8.3%) between 2005
and 2009, although there was a slight increase in real terms between 2008 and
2009. There was a decrease in the number of placements between 2005 and
2009. This decrease in placements was due, in part, to a strengthening labour
market up to 2008 and a tightening up of the criteria for granting early school
leaver exemptions in 2007.
Training Opportunities will not be funded through Vote Education from 2011.
13
70.
Youth Training participation appears not to have moved as the number of youth
not in employment, education and training (NEET), raising questions about the
effectiveness of Youth Training as a means of addressing that problem.
71.
The number of credits attained per $1,000 of real government expenditure was
4.1 percent higher in 2009 than in 2005, but the credits attained per training week
fell by 3.5 percent; the number of trainees and placements fell, and those
participating in the programme were involved in longer periods of training.
72.
Over the last five years, the proportion of placements that results in a trainee not
being in further study or in employment two months post-study has remained
relatively constant at around 16 percent. However, as is the case for Training
Opportunities, the onset of the recession has resulted in a fall in the number of
placements resulting in employment, while the number of placements resulting in
further study has increased.
Student loans and student allowances ($1,389 million allocated to student loans
and $515 million allocated to student allowances in 2009)
73.
There have been substantial increases in government expenditure on student
loans and student allowances between 2005 and 2009. There have been
significant increases in student loan borrowers and student allowance recipients
between 2005 and 2009. Part of this increase is as a result of increased
participation during the recession, but changes to eligibility criterion have also
had an impact.
74.
While the nominal value of the Student Loan Scheme has increased between
2006 and 2009, the ratio of the fair value of the scheme to nominal value has
decreased. You have options in Budget 2011 to increase the value of the scheme
to the government by improving the collection of student loan repayments.
14