Fixing prices: Why vouchers won't work while governments set fees

11 Feb 2009

In December 2008, the federal government received the Review of Australian Higher Education: Final Report, prepared by a policy review committee chaired by former Vice-Chancellor Denise Bradley. The education minister, Julia Gillard, has indicated that she will give her response to it in early March 2009.

One of the Bradley report’s key recommendations is to replace the current system of centrally allocating student places to universities with what it calls a demand-driven student entitlement system. Higher education providers would receive government subsidies according to how many students they enrol. This voucher system—as such schemes are commonly called—would eventually include TAFEs and private higher education providers, as well as public universities.

While a voucher system is a good idea, the total voucher value—which would include federal government and student contributions—needs to act as an incentive to higher education providers. The voucher must at least cover the cost of its associated student place. There is evidence that under the current funding rates, universities lose money on government-subsidised students. Yet the Bradley committee recommends starting the voucher system in 2010 with only modest price changes, and with no clear process for establishing ongoing price-setting mechanisms.

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