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The head of Australia's opposition party signaled how his party plans to approach higher education in next year's elections -- and university officials there are alarmed.

Bill Shorten, who heads the Labor Party, told business ­leaders that a Labor government would pay universities “additional” funding if they improved retention rates, graduate results and productivity.

The move is seen as an attempt to give incentives for universities to rein in ballooning student numbers without reintroducing capped places, but has raised concern the sector could be hit with more regulation and so-called soft caps.

Universities fear the remarks signal a return to compact funding, which distributes grants to universities for teaching and research based on institution-specific deals.

Shorten and his higher education spokesman, Kim Carr, have previously expressed concern about universities “harvesting” students to increase revenue, with insufficient regard to their chances of being retained and gaining employment.

The current coalition government has tried to introduce fee deregulation to address the funding squeeze on the sector, but the reform has twice been blocked in the Senate and is ­unlikely to pass in this Parliament.

Vicki Thomson, chief executive of the Group of Eight, which represents the country’s leading research universities, said that while the sector had not seen details of Labor’s policy, any move to tie funding to ­student results rings “alarm bells.”

“What we don’t need is more regulation in a heavily regulated sector [and] putting in prescribed targets or funding linked to particular outcomes smacks of compacts,” she said. “I don’t think we need more regulation to look at ­retention and graduate outcomes and completions.”

University vice chancellors said the plan could add red tape and place an unrealistic burden on universities in a softening job market, and could discourage them from enrolling the most disadvantaged students, who had been the biggest winners of the demand-driven system established under the former Labor government.

The University of Sydney’s Michael Spence said he was concerned the move would introduce additional regulation into a sector already forced to comply with more than 600 acts of Parliament. “If this is the prospect of just more regulation, more running institutions from Canberra, then … that is not something anybody in a university is going to meet with anything but a sigh.”

The University of Queensland’s Peter Hoj said macroeconomic factors beyond a university’s control often determined job outcomes. “It is certainly a worthwhile debate to say how do you ensure universities take students who are sufficiently well prepared for university?” he said.

Charles Sturt University’s Andrew Vann said he feared funding would be reallocated rather than “additional” incentive funding being on offer.

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