Thursday, 16 August 2007
Higher Education Endowment Fund Bill 2007
That this bill be now read a second time.
This government has now eliminated previous government debt, has delivered successive budget surpluses and, through its strong economic management, can now make a $5 billion investment in the future of the Australian higher education sector. You cannot invest for the future if you are saddled with debt and running budget deficits.
Education builds opportunities for young Australians. It is the fundamental, essential and enduring building block for Australia’s ongoing prosperity.
As a nation, through the Australian taxpayers, the Australian government is promoting excellence in our higher education sector. The Higher Education Endowment Fund represents an unprecedented investment by government in this sector.
This bill describes the two separate governance processes which are required to bring into operation the Higher Education Endowment Fund. The first relates to the investment of the $5 billion of capital the Australian government will inject into the fund from the 2006-07 budget surplus. The second relates to grants which will be directed to building world-class facilities.
It is the first of two bills on this matter that I will introduce today. The second bill, the Higher Education Endowment Fund (Consequential Amendments) Bill, describes supportive amendments that will be required to the Future Fund Act 2006 and the Income Tax Assessment Act 1997.
I will first describe the aspects of the Higher Education Endowment Fund Bill which support the $5 billion capital investment.
Investment in HEEF
The endowment fund, established by this bill, will substantially enhance the funds that are available to be invested in the higher education sector.
This $5 billion investment will effectively double all the existing financial investments and endowments currently held in the university sector.
The investment of the endowment fund will be managed by the Future Fund Board of Guardians, with operational support provided by the Future Fund Management Agency.
The endowment fund will be a true endowment fund with a requirement in the legislation to maintain its real value. Further, the legislation requires that only accumulated returns are made available each year for payment to higher education institutions.
This will create a legacy, established by this government, that will benefit generations of Australians.
The board will be guided in its activities by an investment mandate set out by the Treasurer and the Minister for Finance and Administration. Work will soon commence on developing the investment mandate for the Higher Education Endowment Fund.
The practices for the management of the investment of the Higher Education Endowment Fund will mirror those currently in place for the Future Fund. The Future Fund board will be accountable to the Treasurer and Minister for Finance and Administration for meeting its obligations to invest the endowment fund in accordance with the requirements of the act and the investment mandate directions.
Importantly the endowment fund bill sets out limitations of the endowment fund investment mandate. The aim is to ensure that the endowment fund is not invested in a way that is inconsistent with the endowment fund’s objectives.
The Minister for Finance and Administration, through his responsibility for the Future Fund legislation, will also have administrative responsibility for the expanded functions of the Future Fund board in relation to investment of the endowment fund.
Capital and research facilities
My responsibilities under this bill relate to making grants of financial assistance to the higher education sector. The purpose of these grants will be to support activities in relation to capital expenditure and research facilities.
These grants will promote excellence, quality and specialisation in Australian universities for years to come, which will allow more world-class institutions to emerge.
Grants will be strategic in nature and reflect the long-term goals of the higher education sector. It will not be a source of recurrent funding, as some have suggested.
The endowment fund builds on substantial investment by this government in infrastructure for the higher education sector, including an estimated $607 million over the last 11 years through the Capital Development Pool and an estimated $1.5 billion over the same period for Research Infrastructure Block Grants. The Australian government has also invested over $59 million in universities through the Major National Research Facilities Program. In addition, the government will spend an estimated $540 million from 2005 until 2010 on the National Collaborative Research Infrastructure Strategy.
The endowment fund is in addition to existing programs and serves a very different purpose. The total amount I can spend on grants to the higher education sector in any financial year, the maximum grants amount, will be calculated by the Future Fund Board of Guardians. They will make this calculation in accordance with rules specified by the Treasurer and the minister for finance.
In determining these rules the ministers will ensure that the maximum grant amount does not exceed accumulated nominal earnings, and will have regard to the need to retain the real value of government contributions to the fund and moderate volatility from year to year. Their deliberations will be informed by external advice from an asset consultant. This approach reflects international best practice for endowment funds.
As is evident from these requirements and the bill itself, the endowment fund will deliver returns to the sector which will be intrinsically linked to its performance and in turn the market.
International experience suggests that in using such a strategy over the medium term, around five years, the level of grants that can be made from the fund should become predictable. However, in the short term there may be some volatility.
In the interest of securing a long-term and stable funding base from the endowment fund for the higher education sector, this is a reality that the government will manage for and I encourage the higher education sector to appreciate.
To enable me to allocate grants in a manner which best enhances the sector, I will be supported by a Higher Education Endowment Fund Advisory Board established by this bill.
An interim advisory board will assist me with designing program guidelines for capital expenditure and research purposes. It will also propose terms of reference for the permanent board.
The act defines eligible higher education institutions as those listed under table A and table B of the Higher Education Support Act 2003.
The interim advisory board, supported by my department, will consult widely with the higher education sector over the coming months to determine the most appropriate program design for grants from the endowment fund.
As part of this consultation process I will also ask the advisory board to explore whether there is a desire among higher education institutions to have their own institutional endowment funds managed as part of the endowment fund. I will also consult with the Board of Guardians about how we might practically expand their functions to manage this aspect. Following careful examination of this issue, it may be that we will introduce amendments to this legislation and the Future Fund Act in the future.
The endowment fund should serve as a signal to the community that it should provide greater philanthropic support to universities.
Our higher education institutions have not been as successful as their competitors overseas in attracting philanthropic donations. In fact, in Australian universities, less than two per cent of income comes from philanthropic donations. In comparable universities overseas it can be as high as 15 or 20 per cent.
With this bill the government has created a legacy—a perpetual investment in the future of higher education.
With the endowment fund the Australian government is providing a significant further means to develop a diverse higher education sector with truly world-class institutions.
We also create a new avenue for business and the general community to make philanthropic donations to the sector.
This bill will allow the Future Fund board to accept gifts of money to be included as part of the endowment fund.
Gifts will be treated as tax deductible under the Income Tax Assessment Act 1997 as a result of the Higher Education Endowment Fund Consequential Amendments Bill, which I will introduce in a few moments.
In the first instance, gifts to the endowment fund will only be able to be accepted on an unconditional basis.
The government indicated at the time the endowment fund was announced that contributions could be earmarked for particular universities and could be managed along with that endowment. This issue will require careful consideration in light of both the design of the program and how the Board of Guardians might manage this requirement. I will ask the interim advisory board to deliberate on this matter and provide me with advice. The government may then consider amendments to this legislation.
Broader context of government’s education agenda
I would like to reflect briefly on the government’s broader goals for education, as they are strongly linked to the establishment of the Higher Education Endowment Fund.
We must aim for higher standards in education to support Australians in their quest to learn, to discover and to innovate. We must ensure that universities are well governed, are responsive to student and industry demand, and accountable to the taxpayers who continue to provide the majority of funding to the sector. This year the Australian government is providing a $9 billion investment in education, science and training, including the centrepiece of this year’s budget, the Higher Education Endowment Fund. This builds on an investment of over $56 billion made by this government in higher education, including research infrastructure for the sector.
This financial year alone, the government will invest $8 billion in universities—a 31 per cent real increase since 1995-96.
I expect that the $5 billion endowment fund will play a vital part in realising the government’s vision of making Australian universities synonymous with excellence in research and education.
I commend the bill to the House.
Debate (on motion by Mr Griffin) adjourned.