Minister for Education Batt O'Keeffe should be applauded for putting this important issue back on the agenda, writes Michael Casey.
IT IS A well-known finding internationally that the returns to a third-level education are substantial in terms of future salaries, and that they accrue entirely to the person who acquired the qualification(s).
A third-level education is an investment in human capital which yields a very good rate of return in the future. If an entrepreneur wanted to invest in new machinery which would significantly improve his profit and standard of living and if he went to the Government and asked them, not just for a grant towards the cost of the machinery, but for the total amount required, would the Government give him the funds? Would any government hand over taxpayers' money to individuals for their personal enrichment? Absolutely not.
But the Rainbow Coalition handed over huge sums of taxpayers' funds for the enrichment of a select group of people by abolishing third-level fees. (It wasn't a complete abolition of course. The College of Surgeons was excluded from the scheme because it steadfastly refused to submit to the autocratic one-size-fits-all system run by the CAO.)
Various reasons were put forward by the government of the time for this senseless act which was even more misguided than the abolition of rates on residential property in 1977. The rhetoric and spin surrounding "free fees" sounded good to some people. And indeed it was a huge benefit to the voting middle classes. As we now know, of course, few people from lower socio-economic groups benefited from the scheme. They should have been specifically targeted and, arguably, the blanket abolition of fees made the government feel it didn't have to focus attention on the most deserving who, as usual, fell through the cracks.
The irony is that many poor families have paid and are still paying taxes - especially VAT and other stealth taxes - to help send the children of much wealthier families to university for free and thereby provide them with large salaries for the rest of their lives.
Did the government really believe that a massive transfer of resources to the middle classes would benefit lower-paid families? Was this the reason behind the seemingly liberal policy? No.
The reason was as follows: for some years before the abolition of fees a serious controversy was brewing over the fact that well-off farmers were much better placed to pass the existing means test and thus avail of third-level grants for their children.
Urban-dwelling PAYE families, by contrast, were not in such a favourable position because their incomes were an open book. There was no scope for creative accounting. Very few farmers actually paid fees for their children and the urban middle classes took a very poor view of what they saw as blatant favouritism of the agricultural sector.
The government was frequently reminded of this inequity and it wanted to do something about it. At the time the memory of the urban-rural split over Ireland's dear food policy following entry into the EEC had still not faded away. Combined with a pitifully low tax take from farmers, this led to demonstrations in the streets.
The government did what most governments do. They set up a committee which reported in due course. One of the recommendations of the committee was that farmers in future would be assessed on the value of their land holdings as well as on their incomes. All hell broke loose from the strong agricultural lobbies.
The government, finding itself between a rock and a hard place, and afraid to take even a fraction of land holdings into the reckoning, panicked and abolished fees for everyone, urban and rural alike. The decision was a crassly political one, and the left-wing rhetoric and spin which followed was pure ex-post rationalisation. But, of course, the abolition was popular with the middle classes with one exception - academics who never had to pay university fees for their own children.
The reluctance of virtually all political parties to reverse this bad decision is also crassly political. There seems to be an inability in Ireland to remove any benefit from any group of people, even a benefit which is unfair and counter-productive.
Minister for Education Batt O'Keeffe is the one just man who is at least prepared to debate the reintroduction of fees. He is clearly thinking about the national interest. It will be interesting to see if his Cabinet colleagues have the same enlightened fortitude.
Actually there is no need for a debate on whether third-level fees should be restored. It is a no-brainer. What should be debated is the appropriate level of fees, the fairest means test for grants, and the proper funding of universities needed to bring them up to par with those in other information economies. Structural reform within universities may also be required: mergers of research functions to reach critical mass; better supervision of teaching standards, etc. The perk of free fees for the children of academics should be abolished in the interests of equity. The question of tenure for life should also be examined.
As well as reintroducing fees there should be a stronger focus on spreading the benefits of third-level education to lower socio-economic groups on the basis of
means testing. Where farmers' families are concerned the asset value of one-third (say) of their land holdings could be factored into the means test - again on the grounds of equity. Grants could be graduated according to means.
Finally, a system of deferred student loans should be examined. It is worth repeating that it is the students who capture the life-long economic benefits of education; consequently, they should be well placed to repay loans when they start earning good salaries. In many cases employers who want to hire recent graduates will offer help in paying off the loans on their behalf.
Will politicians do what is right, especially in times of fiscal stringency? Batt O'Keeffe may well have an uphill battle on his hands but at the moment he should be applauded for putting this important issue back on the agenda. But there is a danger that a bad government policy, made for all the wrong reasons, will be retained for even worse reasons.
Michael Casey is former chief economist of the Central Bank and a member of the board of the International Monetary Fund.