Universities are warning of catastrophic consequences if the government does not renew a one-off funding boost made by its predecessor.

The sector is in the middle of another difficult year, with half of the eight institutions expecting to lose millions of dollars.

Universities New Zealand chief executive Chris Whelan told RNZ the situation would get even worse if next year's Budget did not confirm an extra 4 per cent increase to subsidies for enrolments at degree-level and above, for 2024 and 2025 only.

The increase was on top of a 5 per cent increase to subsidy rates in 2024 and was worth about $128m. This year's government Budget increased 2025 subsidy rates 2.5 per cent.

"There's a deep concern that that funding runs out in December next year; it would be effectively a drop on funding for the sector of about 8 per cent at that stage and that would be catastrophic," Whelan says.

"From talking with the chief financial officers of the universities, it's their single, number-one concern.

"There are going to be very substantial difficulties and hard choices that universities are going to have to make if, in the next budget, there isn't a very clear signal that that funding is continuing.

"If it's stopping, it's going to be a real problem for the sector."

This year had been difficult, despite increased government funding, Whelan says.

"Our environment is still tough. Nothing has fundamentally changed in the university sector financial situation. There's been some things that have been positive, some things that have been negative.

"Things like international student numbers have bounced back well and that's fantastic.

"On the flip side, inflation has remained high and that's just eroded very much into the baselines of universities who have had to simply cover a whole lot of increased costs."

Foreign students were helping universities make ends meet, but they were not a silver bullet to the sector's woes, Whelan says.

"It absolutely helps. But even if it's [back to] its best before Covid, international students contributed about 16 per cent of overall university sector revenue. So we're simply recovering back to pre-Covid levels.

"It's important, it's valuable, but it's not going to solve the university sector's financial challenges all by itself."

Tertiary Education Minister Penny Simmonds has responded to the universities' concerns by describing a 'challenging fiscal environment'. Photo: RNZ / Angus Dreaver.

Tertiary Education Minister Penny Simmonds says she recognised the universities were in a challenging financial environment due to a combination of constrained funding, increasing costs due to inflation and the impact that Covid-19 had on international student enrolments.

"The additional 4 per cent increase to tuition subsidies for degree-level-and-above delivery for 2024 and 2025 was intended to provide universities with time-limited support as they managed their way through these challenging issues," she says.

"There has been no decision to extend this increase, which would need to be considered alongside competing Budget pressures in what is a challenging fiscal environment."

Simmonds says the government would increase tertiary tuition subsidies by 2.5 per cent in 2025, in line with forecast inflation and had also proposed allowing tertiary providers to increase tuition fees by up to 6 per cent, making up for previous increases that did not keep pace with inflation.

A university advisory group was examining the challenges facing universities, including the funding system, she says.

Deficits ahead

Auckland, AUT, Victoria and Lincoln told RNZ they were expecting to break even or make financial surpluses this year.

Waikato, Massey and Otago were forecasting deficits, and though Canterbury did not provide figures it had previously predicted a loss.

The same four universities made deficits last year; in 2022, six universities made losses.

AUT said domestic and international students were returning steadily and it was forecasting a surplus. It had also agreed to salary increases for staff for this year and next.

Waikato said it was forecasting a deficit of about $7 million, but enrolments were growing and its final result might be a lower deficit than initially projected.

"Looking ahead, the university is cautiously optimistic about achieving a break-even position or even a surplus by 2025," it says.

A report presented at Massey University's council meeting this week says it was forecasting a $17.8m deficit this year, down from an original budgeted loss of $30m.

It says domestic and international enrolments were higher than budgeted, but some costs were also expected to be higher than planned.

Victoria says it was forecasting a surplus of $2.5m.

The university was in a sound financial position underpinned by growth in the number of new students, retention of existing students, and careful management of costs, it says.

Lincoln University is heading for a modest surplus and remained debt-free. Photo: Lincoln University.

Lincoln says it was expecting a modest surplus.

"This forecast position is underpinned by strong, successive growth in both domestic and international student enrolments. Meanwhile, the University remains debt free and retains a healthy cash position to enable continued advancement of its extensive capital development programme," it says.

Otago says it was expecting a $24m deficit. This came after enrolments there fell for the third year in a row.

Canterbury did not provide a figure, but had previously forecast a deficit.

Meanwhile, annual reports for 2023 showed universities' short-term debt and other current liabilities exceeded more than $2 billion for the first time last year.

Just two of the eight universities, Canterbury and Lincoln, reported positive working capital - their current assets minus their current liabilities.

The result followed Tertiary Education Commission warnings the sector was under unprecedented stress.

However the annual reports also showed the sector's long-term debt had dropped since the pandemic began, from more than $304m in 2019 to $213m last year.

Massey and Victoria reported zero debt while Auckland had the biggest total, $126m, most of it a Crown Infrastructure Partners loan for a building refurbishment.

The reports showed full-time student numbers dropped at five of the universities last year, but grew at Waikato, Canterbury and Lincoln in 2023.

-RNZ