Australian universities recorded a clean bill of financial health last year, early reports suggest, as federal government policy, institutional survival strategies and one-off windfalls helped offset the impacts of?the pandemic.

But the medium-term outlook remains uncertain, with international student revenue plunging and temporary lifelines due to expire.

Annual reports from Queensland and Western Australia, which together contain about a quarter of the country¡¯s public universities, suggest that 2021 was kind to the sector.

All 11 institutions improved their bottom lines during the pandemic¡¯s second year as spending constraints, funding increases and lucrative investment earnings propelled all but one of them into the black.

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Three institutions converted small 2020 deficits into healthy 2021 surpluses. Overall,?the 11 universities notched average operating margins of more than A$100 million (?58 million) each, up from less than A$20 million in 2020.

But the sector¡¯s financial problems have been masked by a one-off A$1 billion boost to research funding in the 2020 federal budget. Much of that money flowed into institutional coffers last year, roughly doubling universities¡¯ receipts through the Research Support Programme ¨C the funding stream chosen as the delivery mechanism for the additional research money.

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The programme, which covers overheads, is monopolised by the research-intensive universities that attract the lion¡¯s share of Australia¡¯s competitive research funding. The University of Queensland (UQ) and the University of Western Australia (UWA) each absorbed about 60 per cent of RSP allocations in their respective states.

Accordingly, the two institutions achieved easily the biggest 2021 surpluses recorded so far ¨C more than A$200 million at UWA and A$340 million at UQ.

Universities have also banked tens of millions of dollars each through a restructure of international education services giant IDP, whose shares were redistributed to individual institutions from a holding company called Education Australia.

This translated to a ¡°fair value¡± gain of more than A$60 million at some universities, preventing at least one from slipping into deficit. But with the IDP restructure now completed, institutional bean counters will not be able to rely on a similar windfall this year.

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Many universities have also enjoyed substantial increases in their teaching grants, largely thanks to grandfathering arrangements associated with the Job-ready Graduates changes to tuition fees and teaching subsidies.

But documentation from the 29 March federal budget shows that teaching grants reached a high-water mark in the 2021-22 financial year, and will decline by some A$200 million in 2022-23 and another A$130 million the year after that.

Queensland and WA universities¡¯ 2021 financial fortunes did not rest completely on lifelines from Canberra or the stock market. Most managed to reduce their expenses ¨C particularly employee-related costs, with some trimming their staffing bills by upwards of A$40 million.

However, most of the 11 institutions forfeited 20 per cent or more of their income from overseas students, compounding their 2020 losses from this key revenue stream. The main exceptions were heavyweights UWA, where international tuition fee revenue slipped by just 1 per cent, and UQ which saw a marginal gain in foreign student income.

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Murdoch University¡¯s interim vice-chancellor, Jane den Hollander, said 2022 would be a ¡°threshold year¡± in many Australian universities: ¡°The return of international students is a priority, alongside the normalisation of the day-to-day for all our students and our staff as we learn to live with the virus.¡±

john.ross@timeshighereducation.com