Teaching Australian students is becoming an increasingly marginal proposition for many of the country¡¯s universities as stuttering domestic income fails to keep pace with soaring costs.

Newly released financial statements suggest that many universities are battling to make ends meet, with teaching expenses mounting more quickly than government grants or income from domestic students¡¯ tuition fees.

The situation is worst at regional institutions ¨C notwithstanding the federal government¡¯s focus on improving educational opportunities outside the major cities ¨C because they struggle to top up their income from fee-paying foreigners and because their relatively high levels of part-time study and student attrition add to costs.

Annual reports for 2018 have now been released by 32 of Australia¡¯s 38 public universities, including the 10 regionally based institutions in New South Wales, Victoria and Queensland. Two recorded deficits ¨C including the University of New England, which parlayed a A$9.3?million (?5.1?million) surplus in 2017 into a A$23.3 million shortfall last year ¨C while two other regionally based institutions recorded wafer-thin surpluses of less than A$500,000.

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The University of New England said its deficit had been driven largely by ¡°one-off costs¡± caused by a payroll tax change and the transfer of one of its campuses. It said its teaching costs had been temporarily inflated by the tax increase and by investments ¡°to improve our financial sustainability in the long term¡± by improving its online offerings.

But it noted that the financial impact of the 2017 capping of teaching grants had been ¡°significant¡±, with income from these grants declining in real terms ¨C despite a small rise in domestic student numbers ¨C because they had not been indexed to compensate for inflation.

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While four non-metropolitan universities managed to convert deficits in 2017 into surpluses last year, in some cases by ramping up international recruitment, the average operating margin across the 10 regionally based institutions plunged from 3.5?per cent to 1.4?per cent.

Former Australian National University economics dean Keith Houghton said scale was a problem for some regional universities. ¡°It¡¯s a challenge if you¡¯re under the threshold of economies of scale and you try to be comprehensive,¡± said Professor Houghton, chief academic strategist with the consultants Higher Education and Research Group.

He said some specialist UK institutions were ¡°extraordinarily efficient¡± despite being small, but almost all Australian universities strove to be comprehensive.

University annual reports show that operating results declined in four of the seven public universities in Queensland, three of the four in Western Australia, four of the nine in Victoria and eight of the 10 in New South Wales.

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Collectively, New South Wales universities netted about A$325?million less in 2018 than they had in 2017. The financial performance of universities declined by about A$240?million in Victoria, A$100?million in Western Australia and A$70?million in Queensland.

john.ross@timeshighereducation.com