Economic modelling shows the Abbott government’s plan to deregulate university fees would drive up inflation in such a way that it will cost more than the savings from the change.

Commentators are using a report by the National Centre for Social and Economic Modelling (NATSEM) to argue that the reform, which is intended to save the Government money, will not.

Fairfax Media says NATSEM’s analysis was presented to an off-the-record forum for parliamentarians and policy experts last week.

Principal research fellow at NATSEM – Ben Phillips – has told reporters that any proposed savings will be washed away by the cost of bad loans and a jump in inflation coming from higher fees in the next few years.

He said the rise in inflation flow on to higher benefit payments linked to the consumer price index, further damaging the budgetary situation.

“Only under the most optimistic fee scenarios would it be likely that the proposed package would save the government money in the future,” Mr Phillips told Fairfax Media.

“The fiscal outcome is not likely to be a deficit reduction measure. Rather it would increase the deficit into the future.”

The modelling was based on a potential 50 per cent increase in student fees – which some consider a cautious estimate – would create a 0.7 per cent increase in the CPI.

Such an increase to the CPI would strip the budget of approximately $1 billion a year in extra payments to welfare recipients including pensioners, carers and the disabled.

Things get worse when this is added to the Government’s own commission of audit findings.

It found the budget could be left worse off when deregulation drives up uni fees, due to an increase in bad loans.

Finance Minister Mathias Cormann denies the basis of the modelling.

“Competition between higher education providers will see many students paying less than they do now for their education as the government supports more higher education options,” he said.

Independent Senator Nick Xenophon said: “This is what happens when you do policy on the run driven by ideology rather than a thoughtful process”.