A lesson from the British international student ‘debate’

Last week I wrote about higher education and student fees. However university funding is a multidimensional beast. I feel it would be remiss not to touch on another major revenue stream for Australian universities: international students.

Here is some perspective.  In the United Kingdom, there were a total of 425,265 international students (EU and non-EU) in higher education in 2012-13. In the United States, the total was 819,644 for the same period.

In the U.S. this is equivalent to 4 per cent of all enrolments while in the U.K. about ~25 per cent.

In Australia, in September 2013, there were 346,965 international students currently in the country (June and December skew on the stock stats because people travel in holidays). This is equivalent to about 32 per cent of all enrolments (however, one should note ‘higher education’ is a broad term). Higher education in Australia is particularly of interest to Asian international students. About 90,000 Chinese students are in Australia compared to a tick over 200,000 in the U.S. Given the vast size difference between the two higher education sectors, this is rather incredible. Perhaps I’ve been drinking the kool-aid, but I see this as a major positive for Australia in the coming decades.

Moving onto income. The money generated from international students is substantial. In 2012-13, this was the 4th largest ‘export’ worth $14.4bn.

When you flesh this out a bit, there are several consequences.

While about 30 per cent of my undergraduate university education was financed by a loan I’ll pay back, the other 70 per cent was kicked in by government. The total cost to me was about $14,000. Yet, for an international student to take exactly the same degree, the costs were about (this is from memory) $55,000 (the same course now costs approximately $78,000). This is despite, presumably, costing exactly the same to teach myself and a randomly selected international student. This fee difference shrinks when discussing post-graduate education but there is still some gap.

This is effectively the subsidisation of higher education for Australians by international students. I don’t see this as a negative outcome, just something to be noted in any discussion about the structure of higher education funding in Australia.

But with this subsidisation comes important considerations. For instance, in the U.K. this year, for the first time in 29 years, there was a drop in the number of international students. In Australia, we’ve experienced out own downturn in students from the highs of 2007-09 and the panic induced to the entire higher education system because this downturn was a cost.

This comes back to a key foundation of migration. Its hardly static. The flow of people, students in this case, responds to many things; the quality of institutions, the quality of other institutions, fees, migration policy and the exchange rate as well other, less tangible effects such as culture and the reception of international students in communities where they study. This last impact was felt heavily after several cases of violence against Indian students in 2009 in Melbourne. It is impossible to untangle the precise impact this had, but I believe it was widely felt, with enrolments dropping off given the broad exposure the incidents received in Indian media.

This dynamic nature of migration should not be forgotten by higher education policy makers and those who care for university budgets. The counter-factual of a substantial reduction in the number of international students in Australia is a massive hit on the higher education budget and likely a large increase in the fees for domestic students.

Britain is currently showing Australian policy makers in this field exactly what a fiasco this can turn into via the Cameron government’s crusade against immigration and the attrition of international students in the process. Before any big decisions are made about higher education in Australia, various environments for international students should be seriously considered as we know change can happen quickly.

Immigration in the news: Chinese workers and the Free Trade Agreement

“Free Trade Agreement: China wants to import workers into Australia”

What is it?

Australia is negotiating a Free Trade Agreement with China. The Abbott government has pushed hard on this, in combination with the recently signed Japan agreement. A Free Trade Agreement liberalises restrictions, typically trade-related, between two countries. Most common are reductions in tariffs or abolitions of quotas. While Free Trade Agreements are normally bipartisan in Australia, there is disagreement outside of politics as to whether they make a strong economic impact. Bernard Keane at Crikey recently reflected on the impact of the Australian-United States Free Trade Agreement:

Still, the AUSFTA is a splendid example of the howling gulf between political journalists, who see FTAs, particularly those announced with elaborate theatre and plenty of colour and movement in foreign capitals, as significant events, and economists, who see little of interest in what at best are trade diversion agreements.

Why does it mention immigration if its about trade?

The article says the Chinese government want to import Chinese workers into Australia to work on projects funded by Chinese investment. Regulations of investment are often included in Free Trade Agreements. However the ability to tie labour to investment decisions has not previously been included in a Free Trade Agreement which Australia is party to. This would set a new negotiating precedent.

Why can’t Chinese workers come through standard immigration programs?

Current immigration regulations require any foreign residents, including Chinese citizens, to hold an appropriate work visa (most likely a 457 visa) if they are working on an Australian-based project for more than three months. It is likely two parts of the 457 visa program – English language proficiency and Australian market salary rates – present issues for Chinese investors wanting to bring their own workers into Australia. These regulations mean workers must have a base level of English (and pass a test to prove it) and they must be paid what Australian’s would be paid to do the same work. The argument from the Chinese government is likely that these regulations add significant cost to Chinese investment in Australia.

Should Chinese workers have a labour exemption due to their massive foreign investment in Australia?

This is the key question. The Chinese government would say yes. The movement of Chinese labour will make investment easier, creating more of it. However the Australian government is resisting such calls. While investment will increase under such a move, its primarily because it will be cheaper and the benefits will mostly accrue to China. One of the reasons the mining boom was welcomed by governments of both sides in Australia was the spike in jobs in mining and construction. This helped keep unemployment low and raise real Australian incomes in a time of global uncertainty. Allowing foreign investors to import their entire labour force would undermine one of the key arguments for the investment in the first place.

So this is a bad idea?

From an immigration perspective, yes I think so. Exemptions and exclusions are tricky business in immigration. Once you start favouring one country, you create significant disincentives for others. If Chinese investors were able to build projects quicker and cheaper than other investors, this would create an uneven playing field. Granted, this is one of the purposes of the Free Trade Agreement in the first place. However this particular inclusion has the ability to undermine Australian labour market norms, not a standard outcome of a Free Trade Agreement.

Any adjustment to the regulations governing international labour mobility should apply to all citizens, instead of those privileged by their country of birth. It is one thing to debate changes to the 457 visa program, it is another completely to create a new type of visa specifically for one country.

What about changes to the 457 visa program?

This is the second article in the last month that has been deliberately leaked by the government about this issue. This shows the Abbott government wants the public to know this agreement is under negotiation. More importantly, the stories say the Abbott government is resisting such moves to include a labour movement clause in the agreement. This demonstrates the Abbott government as strong negotiators but willing to find a compromise, perhaps via the 457 visa program.

The problem with this type of reporting is that the generally interested reader has no idea what is under consideration for the 457 visa program. It gets tacked on as an afterthought. Policy making as speculation and innuendo.

Potential changes may include lowering the English language barrier, watering down the market salary rates proposal or carving out exemptions within the 457 visa program for specific occupations related to specific Chinese investment. Each of these changes has its own set of issues. These changes may apply to everyone or perhaps just to Chinese workers.

What’s going to happen?

We’ll have to wait and see. I can’t see the Abbott government allowing a general labour movement clause in the Free Trade Agreement although who knows? There are undoubtedly changes coming to the 457 visa program – there is a current enquiry underway at the moment – and perhaps this issue will tie in. This would be unfortunate.

In my view, changes to labour mobility should be discussed discretely from trade and investment. Further, proposals that favour one country over another should generally be frowned upon, with the exception of fostering development and regionally-based agreements.

Australian immigration in the 21st century (Part 1)

This is the first in a three part series about Australian immigration in the 21st century

Two symbols of Australian suburban life – the Hills-Hoist and the lawnmower –were broadcast to the world at the Sydney Olympics. Both command attention in backyards across the country, most of which are more than big enough to play cricket in. At the dawn of the 21st century, a bemused global audience caught a glimpse of how we see ourselves. Above all, our space – an entire continent to ourselves – embodied an idyllic Australian lifestyle.

This is the heart of the our population debate. More people means less space. This sentiment fused with electoral politics makes for uncomfortable public policy and strange bedfellows.

The most recent iteration of this potent mix was seen in 2010. A new Prime Minister ran from her predecessor’s policy agenda and a future Prime Minister surveyed the political landscape and made the easy call. Divisive public opinion provided the foundation for ‘a great big new tax’ and ‘stop the boats’. Yet even in this period of heightened political division, bipartisanship in Canberra was far from extinct.

A ‘sustainable Australia’ was born.

Julia Gillard and Tony Abbott campaigned almost in tandem. Abbott called immigration ‘out of control’, Gillard created a Minister for Population and Sustainability and we were promised a Productivity and Sustainability Commission from a Coalition government, which was inevitably scrapped very quietly.

In the four years since, sustainability has been incorporated as a buzzword into the political lexicon, littered within endless talking points and speeches.

This bipartisanship shades the truth. A big Australia is here to stay. Whatever the word sustainable once meant, it must incorporate at least 36 million people by 2050. Sam Dastyari uses his own word to describe the 2010 debate: rhetoric.

“When Gillard redefined the issue from a big Australia to a sustainable Australia, it was actually more rhetoric than policy. It was rhetoric. Rather than embrace it and debate, we’ll redefine it into a less scary concept. There was obviously politics in that. Rhetoric not being matched by policy change was actually disingenuous but everyone is in on it. The Conservatives have got in and nothing at this point indicates anything serious in terms of the broader immigration framework but again, it’s almost as if there is this secret that everyone is in on.”

In his short time in Parliament, Dastyari has become the poster boy for a big Australia.

“It’s become this huge taboo in politics, talking about immigration, talking about population. This is the most significant challenge that is going to be facing us in the next 20-30 years”

This taboo doesn’t apply to Dastyari. A pivotal figure in the much-storied NSW Right faction of the ALP, his position in the Senate allows him a wide berth to explore the controversial. The fact he is Iranian-born is nearly lost in the whirlwind that trails him down the corridors of Parliament House. As his colleagues focus on the deterioration of manufacturing across the eastern seaboard or defend the union movement from another conservative advance, it is easy to dismiss his claims as hyperbolic.

Yet hyperbole it is not. Current rates of net migration are trending above historical levels, something demographic forecasters have had trouble with, making future projections almost impossible. In 2001, the Treasury in the first intergenerational report based its long-term net migration rate at 90,000 per year. A decade later in the third intergenerational report, this number had doubled to 180,000 per year, creating the magic 36m figure where public debate floundered on. As we await the next iteration of the intergenerational report, current net migration trends are hovering at about 240,000 per year. 36m is likely to become 38-40m.

Dastyari is right there is a secret about immigration policy. You’ll find very few politicians who will seriously discuss the issue. Unlike other economic reforms of the 1980s and 1990s, no politician has been able to explain to a sceptical public how and why a bipartisan consensus exists on the wholesale reform immigration policy has undertaken in the past two decades. This starts with a simple yet somewhat uncomfortable truth: with economic growth, comes immigration growth.

Historically, the federal government picked the number of immigrants to enter Australia every year. This was loosely based on the unemployment rate and strength of the economy. These migrants were provided permanent visas, as the vast majority settled in Australia, a concept in direct contrast to many European countries, where temporary migration was the norm.

Two major policy changes in the 1990s transformed Australia’s immigration framework.

These were the introduction and expansion of temporary visa programs such as 457, student and working holiday visas and the shift away from family reunion towards skilled migration. Bipartisan in nature, there has not been a set of policy changes in the past two decades designed specifically to limit migration in any way whatsoever.

Taken together, these reforms lay the foundation of a ‘demand-driven’ immigration system where demand from the labour market and universities largely determines the number of people who immigrate to Australia. Like interest and exchange rates, immigration has changed from a policy wholly determined by government to one where the market plays the dominant role.

This has not removed government agency from immigration policy. Governments establish boundaries through various program settings but cannot determine the exact number of immigrants who come to Australia each year. Economic growth, such as the much touted 23 years without a recession, will bring more people. This is why the past decade has seen such large increases in population projections.

I ask Bob Carr how he would see a lower rate of population growth. He calls for the government to lower the level of permanent visas in the annual budget process. But he doesn’t touch on the policy settings behind student, 457 or working holiday visas, all of which are increasingly doing the legwork on population growth. These are complex programs now interwoven in our labour market, higher education sector and foreign relationships, arising in the last two decades without the accompanying percolating public discussion akin to how we discuss home loans.

We do not understand immigration as a market driven institution but this is exactly what it is. By constantly relying on politicians to set a limit without acknowledging the policy transformation, we are poorer in our understanding.

Elsewhere in Parliament, particularly with the loss of Bob Carr, you find the very same support for immigration and a larger population. Andrew Laming, a Harvard-educated, beer-swilling, Liberal MP represents the electorate of Bowman, a suburban seat in Brisbane’s east.

“On population growth I regard myself of supporter of what we are currently doing. I’m very comfortable with the current growth and wouldn’t dream of any slower.”

From different sides of the political divide, Dastyari and Laming represent the dominant view in Canberra on population.  This bipartisanship emerged as Australia’s period of economic sunshine began in the 1990s. Dastyari calls this “a secret political consensus” on immigration and population, a journey where the public have been left behind.

Those outside this consensus who advocate for a lower rate of immigration, such as former Premier and Foreign Minister Bob Carr, agree with Dastyari’s central point – how difficult it is to talk about Australia’s population. Says Carr:

“Governments in Canberra have traditionally assumed they can ramp up immigration without any accountability and whenever it surfaces as an issue, I’m struck by the fact that Australian’s have made it pretty clear they don’t accept the simple arguments for a bigger Australia”.

I ask Dastyari if this is simply because no one talks about population or if there is something deeper, a wariness of what this conversation might unearth.

“No-one likes change. People are comfortable and change is an unknown. Historically there has been this sense of the Australian psyche which is wrong, that we are this lucky country with this amazing land of prosperity and peace and someone is going to come and take it away from us.”

Bob Carr on the other hand sees the delineation of federal and state jurisdictions as an important factor. He mentions the oft-cited call by federal governments for an infrastructure response to immigration as not being borne out historically.

“I’ve never seen a federal government – Liberal or Labor – make a serious commitment to the nations cities since the era of Whitlam. No subsequent prime minister has shown any commitment to the quality of urban life”.

These are sharp words for his own side, as the ALP oversaw six years of strong population growth from 2007-2013.

Peter Lewis is a director with Essential Media Communication and has tracked public opinion on population.

“Our leaders don’t want a debate about population, they know they can’t win on a ‘big Australia’. Instead they allow immigration to quietly increase while creating panics around specific groups. The slogan trumps the big issue.”

Lewis’ comments about an inability to win a ‘big Australia’ debate are concerning given Bob Carr is hardly inventing what is a genuine public concern about population.

Following the 2010 election campaign, 47 per cent thought there were too many migrants arriving. This tapered off to 42 per cent last year but remains in the top handful of issues raised by voters after the traditional staples of the economy, health and education.

This entrenched gulf between the public and the political class is dangerous. The result is tokenistic urban planning frameworks across capital cities, devoid of vision and detached from reality.

Exhibit A is Infrastructure Australia’s National Priority List. The largest ‘transforming our cities’ project – the Melbourne Metro – is classified as “only not ready to proceed due to a small number of outstanding issues” despite the fact Premier Napthine has likened the Metro plan for Swanston St akin to the Berlin Wall. There is a lack of transformative infrastructure projects simply awaiting approval.

This even extends to where we live. The Grattan Institute has found Australians have strongly divergent preferences about the housing we live in now as opposed to the housing we want to live in. Something is not quite right.

This is where the politics of population crashes up against a brutal reality about sustainability. Policy and discussion are kept in the backroom instead of the front page. Peter Lewis believes politicians have convinced themselves this debate is ‘unwinnable’ because of a reliance on focus groups.

“It’s not impossible. When people think this is simply a choice between development and no development they opt for the status quo. But when you tell them the population will grow, regardless of who is in power, they accept this and are prepared to engage in a debate about what sort of development we should have.”

We now have a sustainable in name, market driven by nature immigration policy that will push Australia’s population past 36m by 2050.

The 20th century lifestyle celebrated in the Olympics by our love for traditional quarter acre is already in the rear view mirror.

The question is not how many people but what does this mean for Australia? The social and economic impacts on Australia are lost in the debate over the headline figure.

The role of the government for emigration and development: Timor-Leste

Typically, the migration and development agenda is stifled by governments and public opinion in OECD countries. Wary of the impact on economies, labour markets, society and culture, the rich developed world has rather entrenched values about mass immigration from poor countries. However, there are more limited examples of where developing country governments have not put in place the right set of decisions to exploit emigration opportunities.

Starting in 2008, Timor-Leste and South Korea have maintained a bilateral relationship for Timorese citizens to work in South Korea. This paper from March 2014 outlines progress and roadblocks encountered since.

The most disappointing part is this:

In the first phase, the Government of Timor-Leste through SEPFOPE sent 50 workers to South Korea. In 2011 the South Korean Government was asking for 2,500 workers, but Timor Leste was only offering 400 workers; in 2012, South Korea raised the number of employees reached to 2750 people, Timor Leste once again releasing only 500 workers. In 2013 the South Korean government demanded workers jumped up to 3,500 people, but the number which derived from the Government of Timor-Leste only reach to 280 workers.

7570 positions left unfilled in just three years. If each additional emigrant sent home $5,000 per year for their work, this is equivalent to $37,500,000 in lost remittance income. For a country of just over a million people with a GDP per capita of just US$1,068, this is a lot of money, equivalent to over 3 per cent of GDP.

Of course, there are some explanations.

To participate in the program, you must pass a Korean language test. At first, I thought this must have been Korean government policy. Except:

“SEPFOPE (a Timor-Leste government agency) has its own criterias that should be met by prospective workers to South Korea such as attending Korean language course in a few months: in fact, many workers did not pass the final exam” (Alves.P 2014).

The language test appears to be Timor government policy, not Korean. Given the potential lost income, this seems a high barrier to entry in terms of emigration. Of course many workers do not pass the final exam, presumably because its extremely difficulty to learn Korean in Timor-Leste. I’m pretty sure I couldn’t pass the test, even with an enormous amount of time invested in learning Korean.

Further, the fact the program numbers have been going backwards is a poor sign for future outcomes.

The Timor government and SEPFOPE need to do more to ensure these opportunities are not wasted in the coming years. It is pleasing to see the problems identified in this report (the lack attendance to classes, the difficultly of Korean instruction in local dialects and the lack of priority the program receives from the government). Hopefully this has set in train a process where the number of Timor emigrants can increase. Perhaps the standard of Korean could be revised downwards for some participants and monitored for any adverse consequences.

The total remittance flow to Timor was just under $3m for 2013. For a country of over a million people, this is not a large amount relative to many of developing countries. Remittances will not solve development in Timor, yet they will assist the overall trend towards better economic growth and living standards.

One of the major issues is the lack of emigration to Australia. While over a thousand workers were in South Korea in 2012 (the work visas appear to be longer a year, with overlap of annual placements), a paltry 29 made it to Australia last year under the Seasonal Work Program. This is frankly embarrassing for both governments. Timor-Leste is one of the poorest countries in the world and Australia one of the richest. The lack of built in support and facilitation of the Seasonal Work Program is something which should be rectified as soon as possible, otherwise it will simply remain an under-subscribed immigration program, useless to regional employers and potential emigrants, angering Pacific governments and an excuse for the Australian government to point to something and say, ‘see, look!’.

English language should be easier than Korean given the residual level of English knowledge in the country . Further, the existing links between Australia and Timor, while seriously frayed at the current time, should make for a more smooth facilitation of emigrants over time. What is really required are a handful of major employers to participate in the program. The Accommodation trial in the seasonal worker program, with eligibility for the entire state of Western Australia and Northern Territory, would be a good place to start.

Timor-Leste should push harder on this. Lobby the Australian government. Contact large hospitality employers in Perth. Harass DFAT about the red-tape inherent in the program. The cold politics of the current relationship should see Australia looking for avenues in which to be more amenable. While this is small fry compared to oil and gas revenue, it is an example of where a small amount of support could transform the flow of people from a rounding error to something more substantial.

A new New Matilda blog

I have a new post over at New Matilda, “Are 457 visas coming to a pub near you?“.

They have some excellent editors. My words go in messy and come out smooth. However I must admit, I would go with a less provocative title yet my job isn’t to get the page views.

I appreciate the opportunity to write for New Matilda. While I disagree with much of their content, it is a great example of a small platform providing some quality independence in Australia’s media. Obviously I also benefit from their stance on publishing relatively unknown bloggers.

Book Review: ‘That Sinking Feeling: Asylum seekers and the search for the Indonesian solution’ by Paul Toohey

I am conflicted about the latest Quarterly Essay.

Paul Toohey is a talented reporter and the reader experiences the pain, sorrow and anger of people seeking Australia, so often missing from the front pages and talkback. We get an insight into the attitudes of those not lucky enough to be born in Australia. “Australia is a kind country”, says one man, a forlorn attempt to keep faith with a new life just one step away from the hills of Java (p14). He manages to weave together the disbelief of asylum seekers at the PNG ‘solution’ and the discontent of the Australian electorate. His use of individual stories, particularly in the wake of a sinking off the coast of Java, is harrowing.

Away from the personal, he reminds us of history, something many choose to forget or are unable to recall. Bob Hawke’s words in 1989 – “Do not let any people, or any group of people in the world, think that because Australia has that proud record, that all they’ve got to do is break the rules, jump the queue, lob here and Bob’s your uncle, other than in according with the appropriate rules” – are a vivid insight into how language infects this debate and has done so since its inception (p19).

Toohey ventures far and wide, adding some much needed global perspective into our narrative on asylum policy. His take on the U.S.-Mexico border debate is well resourced and an excellent comparative case study. While he misses, perhaps deliberately, the miniature (failing to note the net flow of Mexican irregular migrants has ceased), his reading of the U.S. political system on immigration is sound. He purposefully contrasts this to Australia: “(In Australia) we judge – and change – governments on how they handled the big, live issues, taking a short-term view for fear of what the long-term picture might look like” (p33).

Perhaps most pleasing, Toohey identifies the critical context lacking from shorter takes on asylum policy. This is embodied by his words on one of the most insurmountable barriers in global asylum policy. Iran, representing countries of origin, refuses to repatriate involuntary asylum seekers who are found not to have protection claims (p82). The fact is asylum seekers and governments clearly understand the ramifications of this decision, creating a perpetual waiting game for those refused protection visas. The simple solution – send them home – is the furthest from reality. An immigration source puts it most bluntly: “They have no right to remain in Australia, yet Tehran will not take them back. This will be a hard nut to crack” (p83).

He skewers the ridiculous secrecy pervasive in the bureaucracy, even before Operation Sovereign Borders (p53). The lack of clarity in regard to public statements and the refusal to admit policy realities made for a public debate lacking in substance, heavy on political claims. His journalistic instincts serve him well here, seeing through the baseless claims for operational matters.

Yet despite this excellence, I felt there was something very substantial missing.  The ‘Indonesian’ solution doesn’t exist for a reason yet Toohey’s thesis seems predicated on a concrete solution that is just around the corner.

In this sense, the title is misleading. Publicly, there has never been a search for the ‘Indonesian solution’. I know Toohey makes this point, but it seems ignored in relation to his argument. Why is he even searching for it? His reporting stands up for itself, a gut wrenching account of asylum seekers in Indonesia and the failure of Australia’s political establishment to ‘solve’ the problem without resorting to extremism.

His academic expert of choice – Dr Tim Lindsay – outlines why anything less than a well thought out, substantial Indonesian policy would fail. Toohey presents all the evidence to show why this hasn’t occurred to date. Short-term reaction to public opinion is easier to manage by co-opting mostly powerless nations than having a proper discussion with Indonesia. Even today, we see this play out again, with the Abbott government failing to smooth over the clear irritation from Jakarta and instead hop, skip and jump as quickly as possible to tie up a deal with Cambodia.

There were other, smaller, issues. Early in the article, Toohey claims Australian voters ‘kind of got Sri Lankans’ in the sense they were running from real trouble as opposed to Iranians (p16). Yet Toohey’s gut is not as reliable as the reader might hope, his instincts of how Australians view Indonesia patently false until corrected by Dr Lindsey (p72). It also turns out, perhaps Australian voters don’t ‘get’ Sri Lankans given the lack of outrage over the extreme policy positions designed to repatriate Sri Lankans.

More confronting is his use of narrative to supplement otherwise good reporting. Reza, Toohey’s intrepid interepter, has an instructive story. “Malaysia was a revelation. They were free to work and quick-minded Reza was able to avoid trouble with the authorities” (p27).

Just 12 pages later, the reader is treated to this diatribe:

“Malaysia, a more of less unfriendly semi-ally with a very poor record on human rights, which thrashed prisoners with canes, had a police force with a stop-and-search policy that mirrored South Africa’s Apartheid-era passbook requirements, did not recognise Israel, kept unfavoured citizens in a state of fear and unease, punished homosexuality, did not run free and fair elections, controlled the media absolutely, controlled the judiciary, dealt with the outspoken using subversion charge, and appeared to be a preferred address for questionable individuals on the regional terror map. Gillard and Chris Bowen decided Malaysia was a good idea” (p39-40).

Only a fleeting revelation perhaps? On the one hand we see how asylum seekers can experience Malaysia and then we see the more dominant narrative, yet one which struggles to outline why nearly 100,000 asylum seekers and refugees call Malaysia home while avoiding Indonesia in droves. This post-hoc firebombing of the Malaysia solution runs counter to the expertise of the bureaucracy and reflects the crocodile tears shed in parliament, neither of which are raised in any substantial manner in relation to the Malaysia plan.

Toohey’s article is required reading. The bar is low for quality reporting on asylum policy as simple output reigns. He makes his case while occasionally letting his prejudices spill onto the pages, an acceptable trade-off for such a detailed read.

Most importantly, at least from an Australian policy perspective, he nails the electoral addiction of the Liberal Party and Prime Minister Abbott:

“Labor had made the big mistakes on asylum policy, yet it was Abbott’s refusal to even talk through the possible solution with Gillard’s government that sent a loud message to smugglers and asylum seekers: we’re in bedlam, come on down” (p43).

“Even before arriving in office, Abbott had willfully set course for difficulties with Indonesia by insisting on the turn-backs. It appeared he had no longer view on how it would play out, treating it as a short-course triathlon” (p90).

These are character traits that do not sit well for the years ahead.

Why your HELP debt is progressive and how to keep it that way (with added estate tax)

I’m not sure I agree. But it begs the question what is progressive? I’m not very good on the big questions, so I’ll focus on something in the news this week.

I always thought free university education was a solid progressive cause. But if you look at the structure of the labour market, you can make a sound case this isn’t true and certainly wasn’t when HECS was introduced in the late 1980s.

Basically, if you go to university, you’ll (on average) earn additional money over your career from this activity despite giving up income to attend. While you will pay higher income taxes and while you could also argue education is a public good, there is definitely individual gain from university, in the form of greater income.

Now, if most people don’t go to university and its free, this is regressive as poorer people end up paying for richer people. Those that go to university accrue a private benefit funded by the government. Another way to look at this is to ask why university should be free? You might persuade me if the public good argument – higher education making everyone better off – was strong enough, but I don’t think current evidence supports this.

Simply put, there are too many people who don’t attend university to allow it to be free. From a cost perspective, that sounds silly but from an equity perspective, it is important. Perhaps many years into the future, the vast majority of people will receive some form of higher education, meaning the argument to provide it for free to will stronger. Until then, some form of student payment strikes me as a progressive policy response to university funding given the current benefit of university to the individual.

The current system – HELP funding – means university students pay about 30 per cent of their way through a deferred, interest-free loan. The other 70 per cent is government funded. The 30 per cent student fee is likely the best loan one will ever receive. Payments are only due above a threshold (currently above $50,000) and the debt only increases in line with inflation.

I’m going to assume the current system is broadly supported, with a minority on the left arguing for full-government funding of university education and a minority on the right arguing for privately funded university education. Therefore we should be debating the best way to ensure the current system is both equitable and efficient.

Helpfully, on Sunday the Grattan Institute released a report on higher education, calling for HELP reform. This is to derive more income from former students, lowering the level of student debt the government holds:

The Commonwealth Government could save more than $800 million a year by 2017 if it recovers outstanding student loans from deceased estates and people living overseas.

Total doubtful debt – loans that are not expected to be repaid – is likely to be as high as $13 billion by 2017. The Higher Education Loan Program (HELP) lends students more than $6 billion a year to finance their education, as much as the Government spends on funding higher education tuition.

This is exactly the kind of discussion we ought to be having about higher education student fees.

The main point of the report is that the $800m per year could be better spent supporting more teaching and research, than being accrued as ‘bad’ government debt. The greater the percentage of ‘bad debt’, the less sustainable current policy is. I think the two solutions promoted – recouping debt from estate taxes and overseas repayments – are both valid and should be pursued on the proviso the cost to administer such collection is not exorbitant.* Obviously there is the risk a government will seek to raise more revenue from these measures and simply sit on it, arguing Australia can’t afford more resources for teaching and research. This requires a strong counter-argument from higher education advocates.

I see the HELP system as extremely effective. It allows people to attend university without paying up-front fees and has expanded the number of people attending. Andrew Dempster says since the introduction of HECS/HELP “the proportion of young Australians who hold bachelor degrees has increased from an anaemic 12.1 per cent to an impressive 36.8 per cent”.

You don’t need to mortgage your future to attend university in Australia, unlike the U.S. Keeping this policy environment sustainable will allow this to continue long into the future. If “progressive” policy makers are wary of these reform ideas to limit bad debt, perhaps they can be coupled with an expanded youth allowance system, where the incentive to work while at university is slightly discouraged by providing some income in the form of a deferred loan, incorporated into the HELP system. This may better assist students from low-income households to engage and prosper at university.

(Sidenote: the Grattan report also looks at “securitising” government held HELP debt – Appendix 3 – and doesn’t think much of it. When you can’t convince Andrew Norton on a question of funding efficiency, you’re probably doing it wrong)

Finally, a comment to those who argue this generation of politicians got their education for free and are now charging everyone else, naming plans such as this as ‘grave robbing’. This is a ridiculous argument. Times change, its called progress. The realities of university funding reform have allowed literally hundreds of thousands of low-income people to attend university who otherwise wouldn’t have been able to. HECS, now HELP, is a good, solid, progressive policy. It’s not perfect, but instead of snarky comments, think about the consequences and provide something more than outrage.

Away from policy for university funding, the report raises an interesting question about the intersection between estates and government revenue. An estate tax raises government revenue by taking a fixed proportion of a deceased person’s estate. Australia abolished this tax in 1979. Wikipedia helpfully notes stamp duty will kick in when assets are transferred one person to another, however forgets to mention this is typically exempted in relation to estates. Even the U.S., the bastion of individual liberty, has a form of estate tax, as does France, Germany and the United Kingdom (see this helpful EY report, designed to minimise tax payments, for a primer on different countries).

I see no reason for this not to be a part of a progressive tax framework in Australia. Here are comments from the Henry Review on estate-type taxes (H/T Matt Cowgill):

A bequest tax would be a relatively efficient means of taxing savings. Decisions to save taken solely to fund consumption later in life would be unaffected. But decisions to save motivated by the desire to leave a bequest would be affected and this would impose some efficiency costs. In aggregate, though, bequest taxes are not likely to introduce large biases into donor behaviour. A bequest tax could increase labour supply and savings by recipients and prospective recipients, though the effects would be limited.

Such a tax could also be a progressive element of the tax and transfer system. Because the distribution of wealth in Australia is so uneven, most of the revenue available from a bequest tax could be raised from the top 10 per cent of households by wealth.

The key point is the distribution of wealth being so uneven. I believe income taxes were reduced too far in 2006-08 however there are clear behavioural impacts on income taxes above certain thresholds. An estate tax is both relatively efficient and highly equitable. A win-win argument for a progressive policy tweak in our tax framework. It’s not going to raise tens of billions of dollars, but it will assist at the margins and could stave off a less progressive tax change.

If the Grattan Institute can recommend something akin to an estate-type payment in relation to higher education, surely there exists the basis for renewed interest in a limited proposal for a progressive estate tax in Australia. An argument centred around a boost to government revenues while putting a slight dent wealth inequality in Australia should try and carve out a level of support in the electorate.

* There is a third solution outlined – revising the threshold indexation from AWOTE to CPI – designed to captured more people in the threshold over time. I disagree with this as I err on the higher side of the income threshold and the ability to repay debt.However this solution is relatively small in terms of capturing additional debt repayments.


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