The 1988-89 Budget provides more detail on the Commonwealth's intentions for higher education as outlined in the Green and White Papers. This article focuses on one consequence of the Budget: the decline in operating grants per student in the period 1989 to 1991. Not all the data on expenditure and enrolments necessary for precise estimates are available in the budget papers and it is possible that the government will not proceed with some of its proposals such as the continuing transfer of funds to the Australian Research Council. Although estimates must be regarded as preliminary, the average decline for higher education appears to be about 8 per cent per student. The decline is estimated at nearly 10 per cent in universities and about 6 per cent in colleges, though the distinction may be less apparent as mergers occur. The effects of this reduction in funds per student, following the decline of the last decade, on the teaching and research capacity of higher education are a matter of concern, as it seems that staff- student ratios must decline accordingly.