Why free tertiary study is ‘not fair’
The wider access to tertiary education promised under the new Labour policy will have unintended consequences,
Labour’s removal of fees for the first year of tertiary study is clearly a response to the perceived unfairness of moving away from the fully subsidised tertiary education system of the past.
It has also been touted as a way to increase access to tertiary education for those who would be put off by the cost. On the surface these are both popular and laudable reasons for adopting this policy.
However, although tertiary fees have been justified as necessary to cover the cost of ever-increasing student numbers, the fact that they reduce inequality, and make the tax system fairer, is a less intuitive outcome.
As it turns out, removing fees is not a policy you would expect from the Labour Party, given the typical constituent it claims to represent.
It is important to realise that most government expenditure (approximately 83 per cent) is spent equally on all New Zealanders – a form of a universal basic income mainly provided through services instead of cash.
The big-ticket items are public healthcare, compulsory primary and secondary education, superannuation, and core government services such as roading, law and order, and defence.
Even without New Zealand’s slightly progressive tax rate this results in a transfer of wealth from the richest to the poorest as those above the average income pay more tax than they get back in services, and vice versa.
This is generally seen as a good outcome as it helps to alleviate inequalities in society.
Government expenditure on tertiary education is an exception. Those studying clearly receive more benefits than those who do not and, while technically available to all, attendance in tertiary education is highly correlated with the social status of one’s parents.
Therefore, government subsidies are effectively a regressive tax where the richest have their education subsidised by the poorest. In New Zealand, those who do not study at tertiary level miss out on approximately $1000 per year (or $80,000 over the average lifetime) in government benefits.
Although extremely unlikely to happen, making tertiary education compulsory would go some way to addressing this issue, but would still be limited by the significant difference in course costs. For example, those doing sciencebased courses would benefit more than those doing humanities. There also seems to be wide acceptance that tertiary training is not the necessary or preferred choice for all.
As a thought experiment, imagine a system where students paid the full cost of study and the existing spending on tertiary subsidies was instead paid equally to everyone as a cash payment of $1000 per year, for life. People could use this for tertiary education, or instead choose to do something else they view as more valuable.
While it would not make tertiary education universal, it would make the subsidy universal so that it would be fairer to everyone. Alas, trusting people with their own money is usually a step too far for most governments.
The current middle ground of students paying for part of their education goes some way to solving the problem. Those doing tertiary study still benefit enormously (students only pay about 23 per cent of the course costs) but it is not quite as unfair as a fully subsidised system.
The student loan scheme helps to ensure access for all and, despite appearances, also benefits the poorest as the requirement to repay is linked to future earnings.
There is clearly a concern that fees introduce a psychological or practical barrier preventing those who should study from accessing tertiary training. However, a wholesale elimination of fees is an extremely expensive way to address this.
As a comparison, for the same cost we could continue to charge those already planning to study and then pay the fees for an extra 100 per cent more students who need encouragement (this of course ignores the massive costs associated with simply having more students, but this would also apply to the zero-fee scheme).
Although removing fees will probably see an increase in student numbers, it is unlikely to be on this scale. If access is the main issue being addressed, this indicates that there are probably better and more cost-effective solutions.
Sceptics might argue that improving access has never really been the main concern. It is likely that those already planning to study will be the primary beneficiaries of having fees removed. No doubt they will be very grateful (in politically practical ways) to be able to pocket the extra subsidy while conveniently forgetting the cost imposed on those not doing tertiary training.
Although a universal payment system described above would be fairer to all, the existing fee-paying system is probably the best option we can hope for at the moment.
However, Labour has responded to the call to return to the ‘‘good old days’’ when tertiary training was ‘‘free’’, despite the inherent inequality of this. Presumably only those who have already, are now, or will pay the fees are being heard rather than those currently missing out.
Labour should realise that tertiary fees do a reasonable job of reducing a benefit largely captured by the well-off. In the short term it might be politically beneficial to scrap fees but, on closer examination, free tertiary education is not well aligned with Labour’s vision for a more equitable society. To achieve that, there are better ways this money could be spent.