Talk to Legal Aid Conference, Sydney, Friday, August 22, 2014
I’m trying to give fewer speeches these days, and I knock back far more invitations than I accept, but I agreed to talk to you today mainly because I felt I ought to thank you. Thank you for the work you’re doing, for the contribution you make in ensuring that people are informed about their rights and responsibilities under the law and are adequately represented before the courts.
All of us are entitled to equal treatment under the law regardless of our means, but you don’t need me to tell you that, in a market economy such as ours, legal expertise is expensive, thus producing a big disparity between theory and practice in the dispensation of justice. Legal aid seeks to reduce that contradiction, but the inadequacy of its financing leaves many practitioners feeling they need to make a personal contribution.
I hope and expect the work you do brings you a lot of satisfaction - a lot of psychic income, as economists sometimes say - but, even so, I know that whether you’re working pro bono, whether you’re paid some quite inadequate government fee or whether you’re a full time government employee, all of you are making an actual-money sacrifice. The opportunity cost of your contribution is high.
The role of legal aid lawyers came into my mind when I was thinking about the wider implications of the Abbott government’s proposed changes to university funding. If the deregulation of fees led to very much higher fees for law students - as it almost certainly would - new graduates would be highly conscious of the huge debt they owed. And, assuming the plan to charge a ‘real’ interest rate on the debt goes ahead, highly conscious of the way the debt was being added to for as long it took to pay it off. The risk is this could make them a lot more mercenary in their choice of a career, more inclined to seek a high-paying job rather than a possibly more satisfying but less well paid job at a community law centre or in legal aid. It would be a similar story in medicine, with more young graduates anxious to get into high-paying specialties and fewer interested in the slog of general practice. Would this be a good thing? It would certainly be an ‘unintended consequence’.
Since we’re on the subject, and I’m sure it’s a topic of interest to most of you, let me use the rest of my time to examine it. Many people oppose the government’s proposed changes as ‘unfair’, but I think in this case the question of what’s fair and what’s not is much harder to determine that than.
When the Hawke-Keating government reintroduced uni fees - HECS, the higher education contribution scheme - the rationale was that, even though there is a public benefit from having a better educated, more highly skilled workforce, graduates gain a considerable private benefit from the acquisition of a degree - one worth, on average, a total of maybe three-quarters to a million dollars in higher salary over their working life. That being so, it was fair to other, non-graduate taxpayers to ask graduates to make a significant contribution towards the cost of their education. They’d still be way ahead on the deal.
The one big worry was that making graduates contribute to the cost of their education, and acquire a debt to the government, might deter bright young people from poor families from seeking to advance themselves. Professor Bruce Chapman, of the ANU, sought to overcome this problem by inventing the ‘income-contingent loan’, where the government effectively lends students their tuition fees, but students don’t have to begin repaying their loan until their income reaches a certain threshold. From that point, the tax office imposes a repayment of a certain small proportion of their income, with the proportion rising as their salary rises. Once a year the balance outstanding is indexed by the inflation rate. To an economist, this means the loan is subject to a real interest of zero. Because this interest rate is so concessional, and because repayments are geared to the debtor’s ability to pay and the level of repayments is never onerous, the fact that a student came from poor family shouldn’t deter them from going to uni. In Chapman’s mind, HECS is an equity (fairness) measure, intended to give students from poor families equal opportunity to go to uni.
The Howard government increased these fees some years later and also introduced three categories of fees, high, medium and low. This new fee structure was a hybrid one, based partly on recovering the cost of providing the degree and party on the amount of income a holder of that particular degree was likely to earn. The medicos went into the top category because medical education is expensive to provide. Law degrees are reasonably cheap to provide - no laboratories - but they also went into the most expensive fee category on the basis that lawyers earnt a lot of money. You probably know that; I mention it because, if the deregulation of uni fees leads to much higher fees for law degrees, it wouldn’t be hard for law students to be charged fees well in excess of their degree’s actual cost of provision. Would this be fair?
To analyse the fairness of the Abbott government’s proposed changes, we need to distinguish between the changes to the HECS loan-repayment scheme and the deregulation of fees. The main change on the HECS side is the plan to impose a real interest rate, based on the long-term government bond rate. Here Chapman has done some modelling which leads him to conclude the change would make HECS quite unfair, in that graduates who go into lower-paying occupations would end up paying much more interest than those who go into higher-paying occupations, simply because it took the less-well-paid much longer to pay off their debt. This would also apply to graduates whose full-time career was interrupted by childcare responsibilities or overseas travel. And it would apply particularly to students who spent a few years at uni before giving up and taking a non-graduate job. Of course, those graduates who went on to a high starting salary with quick progression to higher salaries - such as lawyers, doctors and others - wouldn’t be greatly burdened by the real interest rate because they’d pay back their loan so much quicker.
Even so, there seems little doubt the plan to impose a real interest rate on HECS would be significantly unfair. But judging whether fee deregulation would be unfair is trickier. Indeed, you could argue that requiring those who aspire to be among the highest income-earners - the great majority of whom come already from reasonably privileged homes - to pay a higher proportion of the cost of the education that makes this possible would make the system fairer rather than less fair.
No, my reservations about fee deregulation don’t arise from a concern about ‘fairness’ in the conventional, distribution-of-income sense. For many years federal governments have been involved in a process of back-door privatisation of our universities. It’s clear the motive for this is primarily financial: to reduce tertiary education’s call on the federal budget. Before the process started, unis relied on the federal government for about 80 per cent of their funding. Today’s it’s down to about 40 per cent. The primary motive of fee deregulation is to create greater scope to continue this process, maybe eventually getting the unis off the books completely.
It’s significant that the decision to allow unis to set their own fees comes with a cut in federal per-student grants to the universities averaging 20 per cent. I have no doubt that, should fee deregulation go as planned, the government’s intention is to further cut its per-student grants. It probably also intends to push more of the burden of funding university research back on to the unis themselves and, through them, on to students via ever-higher fees. This seems clear from the government’s rhetoric linking fee deregulation with raising the international ranking of our top unis.
When I say successive governments have been quietly privatising our unis, I don’t mean they’d like eventually to see them as privately owned businesses. But it’s clear the goal is to make them non-government, non-profit organisations competing with each other in a tertiary education market. Unis are to be the next be step in the ‘marketisation’ of Australian life. Canberra’s primary motivation is to free its budget of the burden of the unis, but this motive is bolstered by its ideological conviction that the discipline of the market would drive out all the inefficiency in universities that every academic complains of, and leave us all much better off.
But this is where I hae me doots. Economists love markets, and most economic rationalists think the more aspects of our lives that are subject to the discipline of market forces, the better off we are. It is, of course, a more materialist approach to life, where we think more about money and self-interest and less about our contribution to the good of society and the wellbeing of others, where we’re more individualistic and less communitarian, where young lawyers are more likely to go for the big bucks and less likely to do a sappy thing like getting involved in legal aid. I don’t like the sound of it.
