University Discretionary Research Expenditure Achieves Record Levels

By Frank Larkins, Professor Emeritus in the School of Chemistry and a former Deputy Vice Chancellor of the University of Melbourne.

Universities fund their research activities through a combination to external research funding, principally government sources with some private sector contributions, and by using university discretionary funds. The latter are mainly sourced for teaching domestic and international students and from donations and investment income. In numerous submissions to the Commonwealth Government Australian universities have consistently stated that government research funding was insufficient to sustain their international competitiveness so cross-subsidisation was necessary.

Strong representations in the 2000s led in 2008 to both the Cutler review of innovation (1) and the Bradley review of higher education (2). Prime Minister Kevin Rudd announced in the 2009-10 budget statement an investment over four years of $5.7 billion to facilitate reforms to the higher education sector including increased support for the indirect costs of research. The reforms were published in a 2009 policy paper entitled Transforming Australia’s Higher Education System (3). Increased resources for research and research infrastructure were proposed to support national innovation to create a ‘stronger, fairer and more prosperous nation’. The expectation from government was that in the period 2010 to 2014 their initiatives would provide a major stimulus to university research and development (R&D) such that the level of cross-subsidy would diminish (4).
In previous articles published in 2011 (5) and in 2015 (6) the extent to which universities cross-subsidise research from university discretionary funds was examined covering periods from 2002 to 2012. The trends in research funding over the seven-year period 2008 to 2014 are reviewed here in the context of the 2009-10 policy reforms. This period is chosen because the ABS 2008 data provides a reference point before the government commenced its planned increased investment in AHE from 2010.

Data Sources
The Australian Bureau of Statistics (ABS) has collected and analysed data on the Research and Experimental Development activities of Australian Higher Education Organisations at two-year intervals since 1992. The latest published statistics are for 2014. They were released in May 2016 and are known as the HERD collection (7). This is the most comprehensive consistent set of data related to Australian Higher Education (AHE) research expenditure currently available. When it is combined with external research income data (ERI) provided by universities to the Australian Research Council for the purpose of allocating research block grant infrastructure (RBGI) funding one has information that is very valuable in assessing trends in university research funding (8) . A limitation is that the data are only available publicly in aggregate for the whole AHE system, not on an individual university basis. Nevertheless, a good insight into the collective practices of universities regarding their expenditure on research can be obtained.

Research Funding 2008 to 2014
The sources of research funding from 2008 to 2014 and the changes over the seven years are shown in table 1. The total funds expended on research (HERD) increased from $6,843m in 2008 to $10,145m in 2014 (7). This growth of $3,301m represents a 48% increase in the seven-year period at an average rate of 6.8% per annum, well ahead of the average inflation rate of 2.4% per annum (9). The 2014 HERD expenditure was distributed as capital expenditure 8.2%, labour costs 42.5%, student scholarships 7.3% and operating expenses 42.0%.

Table 1. Australian Universities Research Expenditure (HERD), External Research Income (ERI), Research Block Grant Income (RBGI), University Discretionary Research Expenditure (DRE) and Universities Total Operating Expenditure (TOE) from 2008 to 2014 ($m)

 2008201020122014Percent ChangeGrowth Rate 
2008-2014 pa
Total Research Expenditure $m (HERD) 6,8448,1609,61010,14548.2%6.8%7
External Research Income $m (ERI)2,8103,0733,4153,74433.2%4.9%8
Research Block Grant Income $m (RBGI)1,2081,4241,6321,72242.5%6.1%8
ERI+RBGI $m4,0184,4975,0475,42735.1%5.1% 
HERD-ERI-RBGI $m i.e. University discretionary research expenditure (DRE).2,8263,6644,5624,71866.9%8.9% 
DRE as percent of HERD41.3%44.9%47.5%46.5%   
Total Operating Expenditure (TOE) $m18,58920,14023,27725,85939.1%5.65%10
DRE as percent TOE15.2%18.2%19.6%18.2%   
HERD as percent TOE36.8%40.5%41.3%39.2%   

The competitively-based externally sourced research funds, (ERI+RBGI), increased from $4,018m in 2008 to $5,427m in 2014 at a rate of 5.1% pa. The 35% increase in seven years (table 1, rows 2-4) was less than the HERD increase of 48%. The difference between the HERD and the externally sourced research funds, ERI+RBGI, is the expenditure made by universities from other discretionary income available (DRE). This amount has increased by 67%, from $2,826m to $4,718m, at a rate of 8.9% pa in the seven years from 2008 to 2014 . Hence, discretionary funding represents an increasing proportion of all the research expenditure. The outcome may be expressed for simplicity as: For every additional $100 of external research funds sourced since 2008 universities have committed $134 of available discretionary funds. During this period university total operating expenditure (TOE) increased by 39% (10), so universities collectively were committing a higher proportion of their discretionary expenditure to research in 2014 than in 2008. (table1, row 8). The overall commitment to research expenditure increased from 37% in 2008 to 39% in 2014 (table 1, row 9). The commitment had been even higher in the intervening years.
The HERD and discretionary research expenditure (DRE) by universities is shown graphically in figure 1. Nearly half of all the funds expended on research represents discretionary expenditure with the main outlays being staff costs, student scholarships and operating expenses.
Figure 1. Higher Education Expenditure on Research and Development (HERD) and the Discretionary Research Expenditure Component in millions and as a percentage of the HERD Expenditure, 2008 to 2014.

Policy Considerations.
Universities have been successful in gaining external research income at a faster rate than the average inflation rate. However, universities collectively have been prepared to increase research expenditure from discretionary funds at an even faster rate. Increased tied government research funding has not resulted in a displacement of discretionary research funding. It has had the opposite effect. Universities in 2008 expended 0.70 cents of discretionary income for every $1.00 of external research income gained. By 2014 the discretionary outlay had increased to 0.87 cents for every external research dollar received.
Universities for many years have reasoned that they do not receive adequate government funding to cover the indirect costs associated with government-sponsored competitive research grants. The Rudd government did propose to increase the indirect funding to 50 cents per competitive research grant dollar following a recommendation of the Bradley Committee (2); however, the sum has hardly varied from 23 cents despite expectations. To maintain a desired level of activity and the quality of the research output it seems that universities have been prepared to commit an ever increasing proportion of their discretionary operating expenditure to support research.
It is concluded from this analysis that universities have collectively have determined that there are strategic benefits in according a higher priority to growth in research expenditure compared with the growth in resources directed towards other activities, principally teaching and learning activities.

1. Cutler, T., Venturous Australia – Building Strength in Innovation, Canberra, 2008,
2. Bradley, D., Review of Australian Higher Education, 2008, Australian Department of Education, Employments and Workplace Relations,
3. Australian Government, Department of Education, Employment and Workplace Relations, Transforming Australia’s Higher Education System, 2009,
4. Larkins, F. P., Australian Higher Education: Research Policies and Performance 1987-2010, Chapter 4, pp 99-120, MUP.
5. Larkins, F. P., Universities Cross-Subsidised Research Activities by up to $2.7 billion in 2008. 27th July 2011.
6. Larkins, F. P., Australian Universities Increase Their Discretionary Research Investment To Enhance Reputational Competitiveness. 16 March 2015
7. Australian Bureau of Statistics, Cat. No. 8111.0 Research and Experimental Development, Higher education Organisations, Australia, 2014. Published May 2016,
8. Total Research Income and Research Block Grants,
9. Reserve Bank of Australia, Inflation Calculator. Available at
10. Total Operating Expenditure, Australian Department of Education, Higher Education Finances, December 2016, 

1. Similar, but not identical research income information was provided to the ARC for the Excellence in Research for Australia (ERA) exercise.

2. The amounts in table 1, row 5 are less than the ABS entry for general university funds for research because in the HERD reports some of the competitively-based RBGI money is included as university funds.

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Professor Emeritus Frank Larkins