Australian universities set to profit from proposed caps on international student numbers
By Rohan Pitchford and Rabee Tourky
There is some weeping and gnashing of teeth by Australian Vice Chancellors about the ALP’s plan to cap international student numbers. The idea is that the government will limit the number of international students studying in Australia and that it will do so via government fiat, order or directive — instead of imposing a high enough GST-style levy on international student fees to achieve the same reduction in international student numbers.
To understand the consequences of the proposed cap, let’s look at how the same outcome of reducing international student numbers would have worked had the government imposed a tax on incoming students. It is, as described by us in earlier pieces, likely that international student demand for study in Australia is highly inelastic. That is, a marginal coordinated international student fee increase by all Australian universities will increase total revenue received by the sector from international students. This is the case, we argue, because students from China choose to study in Australia for a number of reasons that don’t have much to do with the education product provided by Australia. For example, similar time zone and potential immigration. So if universities coordinate on fees they charge international students, then, as a whole, the revenue of the sector would increase. Collusion between universities on fees is, however, difficult to implement without the help of government. This is where government policy steps in … and who receives the increased profits from coordination depends on the details of the policy intervening in the market for international students.
The proposed government levy, or tax, on international students was a sort of collusion mechanism for the sector as a whole, as under such a levy all international students would face a fee rise simultaneously across all the sector. However, such a levy would ensure that any increase in revenue from this coordinated fee rise goes to government rather than the colluding universities, and the government then may allocate these returns to whatever projects they wish to fund, such as research in physics or electric vehicle infrastructure.
The government has chosen to cap student numbers by fiat decree instead of through a fee levy. What do we anticipate to happen now? The government is not going to make any money from the policy, but the sector may profit from it. Importantly the rationing of student entry into programs is ultimately left to universities, the universities will need to meet the caps. Even if the government limits the number of student visas over the next years, universities will need to affect policies that reduce their own international student numbers. Of course, the universities have many ways to ration international student numbers, with two reasonable rationing mechanisms: the first is to increase entry requirements into programs. For example, increase GPA requirements or require higher test scores in English language tests. The other reasonable way to impliment the required rationing of international student numbers is for universities to increase international student fees to meet the caps.
We anticipate that universities will quickly realise that rationing international student numbers to meet caps through fee increases will dramatically increase their revenue. That, basically, the caps are a coordination mechanism for uniform increases of fees across the sector. The loser in the proposed caps is the Australian tax payer to whom this increased revenue would have accumulated had the government reduced international student numbers through a tax similar to GST.
Rabee Tourky, is the Director of the Research School of Economics at the Australian National University and The Trevor Swan Distinguished Professor of Economics. His interest has been the operations of markets and market incompleteness.
Rohan Pitchford, is a Professor of Economics in the Research School of Economics, currently working on securitisation and financial stability. He has published papers on the economics of contracts, default and sovereign debt in the leading journals in Economics. He is a graduate from MIT.
