Australian prime minister John Howard has refused to rule out possible cuts of up to Aus$500 million (Pounds 250 million) in spending on ÖйúAƬ. He failed to allay vice chancellors' fears of severe cuts in this August's budget when he met them in Canberra last week.

Mr Howard expressed a commitment to ÖйúAƬ but refused to guarantee that his pre-election promise to maintain operating grants at current levels would be kept.

The Australian Vice Chancellors' Committee had asked to meet Mr Howard after being dissatisfied with responses from education minister Amanda Vanstone. Senator Vanstone had earlier suggested to the committee that cuts of up to 12 per cent could be imposed.

AVCC president Fay Gale urged Mr Howard to consider alternatives to reducing spending. She said the government should consider offering incentives to graduates to repay debts incurred under the ÖйúAƬ Contribution Scheme. Professor Gale pointed out that graduates and students owed more than Aus$4 billion in HECS charges. This appeared to come as a surprise to Mr Howard.

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She said that if the government offered a 25 per cent discount to graduates who paid their debt in one lump sum, instead of paying a tax surcharge over many years, this could generate millions of dollars. At present, only students who pay the charge on enrolment get the 25 per cent discount.

A spokesman for the prime minister said later the discussions had been "wide-ranging and fresh". The government supported the sector but universities would still have to make a contribution to reducing Australia's deficit.

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Professor Gale said her committee recognised the need for budget cuts but that the proposals she had presented would achieve savings while still allowing Mr Howard to honour his election promises.