Who would have thought universities would be so allergic to the spirit of critical inquiry? More than two months ago, Andrew Norton of the Grattan Institute released his Graduate Winners paper questioning whether the government should subsidise the cost of university degrees that lead to high-paying jobs.

Norton asks a worthwhile and fundamental question: is the $6 billion that government spends each year subsidising university degrees justified? It is a complex question with a range of complex answers.

Norton’s particular answer is that for many students this public expenditure is not justified because they would still have ample financial incentive to study even if the subsidy was withdrawn and they paid more in university fees. The return they would receive through extra lifetime income would still make higher education an attractive investment.

Norton arrives at this answer with careful arguments based on detailed research, and he is not easily dismissed with a few rhetorical jabs.

But this did not deter some in the higher education community who evidently reject the idea of critically examining the basis for government funding. Norton was merrily attacked, but the merits of his argument were largely left untouched.

Geoff Sharrock, a specialist in tertiary education at the University of Melbourne, put his finger on it in an article in The Australian earlier this month. Norton’s Graduate Winners, he concludes, is not being countered by its opponents with substantive argument. Rather it is being treated as heresy.

“The allergic reactions it attracts reflect the strength of a common orthodoxy, that the production of public good requires public money,” Sharrock wrote.

Sharrock admits that he is part of the orthodoxy. He works in a senior position as program director for tertiary education leadership and management at the University of Melbourne’s L.H. Martin Institute. He does not support the cuts to university public funding advocated by Norton. “Who in my position would?” he says.

But he appeals to the higher education community to use reason, rather than rhetoric, to refute him.

Since Sharrock wrote this nearly two weeks ago, another Norton critic has stepped forward. The director of the Education Institute at the University of Canberra, Louise Watson, has offered a more comprehensive response to Norton. Watson was a member of the panel that wrote the Higher Education Base Funding Review, handed to the federal government a year ago.

She has a number of criticisms of Norton. One of them is that she believes it doesn’t work to distinguish between high-income earning graduates and low-income earning graduates on the basis of the discipline they study. Norton looks at high-income earners, for example dentists, and concludes that they would still study dentistry even if they paid the full cost of their course because the financial return is so great. So why subsidise them?

Norton draws his figures from Watson’s Base Funding Review, which asked the Centre for Labour Market Research to estimate the rates of return to graduates in different professional disciplines.

While dentists make 17 per cent to 20 per cent annual return on their investment in education, teachers make 10 per cent to 11 per cent and graduates of visual and performing arts courses get, on average, a negative return because their earnings don’t, as a rule, cover the cost of their university course.

Norton uses these outcomes to judge whether students would still be willing to study a particular course if the government subsidy was withdrawn. If the return is sufficient, he believes that the course will still be in demand. Watson reiterates that the Base Funding Review rejected this approach because of differences in students’ individual circumstances within a particular discipline. For example, there are rich law graduates and poor law graduates, and if the subsidy for law is withdrawn on the grounds that the average lawyer earns plenty, the poor ones will be penalised.

Law courses illustrate the difference in approach between Norton’s plan and the approach taken in the Base Funding Review advocated by Watson.

Norton would have law students pay more for their course, but not that much more because they already pay 84 per cent of the cost of a law degree and paying 100 per cent is not a huge additional impost.

But the Base Funding Review recommends that the government should not try to vary the price of university courses according to the incomes that graduates are likely to receive in different professions.

Instead it urges the government to base the price on the cost of providing the course, with a goal of asking students to pay 40 per cent. This means that law students will pay much less, but the Base Funding Review recommends this be phased in slowly.

It is important to note that Norton does not reject public funding of university courses, but he argues it is only justified if there is market failure and a public subsidy is needed to produce public benefits that would not otherwise occur. He spends a lot of time in his report analysing ways of measuring public benefits. He ends up advocating that about half of the public subsidy for higher education degrees, about $3 billion, be progressively withdrawn.

For her part, Watson questions much of the methodology Norton uses to calculate public benefits. There is not the space here to analyse these arguments, but her paper is available at the Education Institute website. It is a good start at initiating the debate which should take place on this issue.

Norton is not going to go away. This is only the first of many challenging reports he will certainly write from his position at the Grattan Institute. In the higher education sector it’s time to get into a state of extreme readiness for some serious policy discussions.