Tue Oct 24

What would a levy on international student fees mean for Australian universities?

Written by: Gwilym Croucher, Associate Professor, Melbourne Centre for the Study of Higher Education, The University of Melbourne

A major higher education review is considering putting a levy on international student fees in Australia.

The idea is universities would pay some of the fees they receive from international students into a central fund managed by the government.

This would effectively impose an export tax on international students to address calls ^[1] for increased funds for research and infrastructure.

Despite the radical nature of this proposal ^[2] from the Universities Accord review team, there has been very little debate about an international student levy so far.

In a new report ^[3] we examine how a levy might work and its likely impact on students and universities.

What is being proposed?

The Australian Universities Accord ^[5] review team, led by former vice-chancellor Mary O'Kane, is at the business end of its work. An interim report ^[6] was released in July and a final report is due back to the federal government in December.

The interim report contained more than 70 policy ideas for further consideration. One of these is a levy on international student fee income to:

provide insurance against future economic, policy or other shocks, or fund national and sector priorities such as infrastructure and research.

When releasing the report in July, Education Minister Jason Clare added ^[7] the levy could could create a fund “a bit like a sovereign wealth fund”.

A big discrepancy

International student fees are a vital part of funding for Australia’s universities. In 2019, pre-COVID, international student revenue was A$10 billion ^[8].

But there is a big discrepancy between how much income Australian universities receive from international student fees. The levy would be a way to channel funds from institutions that receive a lot of international student fee income to those that do not.

Income from international fees tends to be concentrated ^[9] in metropolitan universities, who can more easily attract students with their location and rankings.

In 2021, for example, The University of Sydney ^[10] collected the most international student fee income at A$1.3 billion, which was roughly 38% of the university’s total budget that year. In contrast, The University of Notre Dame ^[11] collected about $5 million or roughly 2% of their budget that year.

But if the levy is going to provide “insurance”, this implies a reserve would need to be built up. So hundreds of millions of dollars of fee revenue would be withdrawn from the sector for several years until a target was reached.

Why tax international students?

A core question confronting a new levy is “who should it apply to and why?” The current proposal involves taxing fees paid by international students but not those paid by domestic full-fee paying students. The vast majority of these are enrolled in postgraduate courses and like international students are unevenly distributed across the sector.

A levy risks exacerbating the already problematic perception international students are “cash cows” – a concern expressed by the Business Council of Australia ^[13] and Bond University ^[14] among others.

International students have been returning to Australia since borders re-opened after COVID. Joel Carrett/AAP

Most international students already pay tuition fees significantly higher than the amount universities receive for domestic students. But at least at the moment, international students can choose between a wide range of providers and courses at varying fee levels.

If there was a levy, their fees may end up funding activities that have little relationship to their studies or experience in Australia.

Without transparency and accountability over the different purposes for which the funds are used, students might rightly ask whether they are receiving value for money and why domestic full-fee students are not contributing.

International students already contribute significantly to the public purse beyond their course fees.

We estimate the Australian government currently collects more than A$2.6 billion ^[15] per year directly from international students’ charges and taxes. This includes visa fees, income tax if they are working in Australia and GST.

Redistribution will be tricky

Another issue is around the public redistribution of private fee income.

As our report notes ^[16], Australia’s five largest universities – The University of Sydney, Monash University, The University of Melbourne, The University of New South Wales and The University of Queensland – have had significantly higher international revenue than other institutions in recent years. Depending on the design, they may provide the lion’s share of the contributions.

For example, a straight 5% levy on international student fees for each university in 2021 would have collected more than $430 million, half of which would come from the five universities with the highest fee income.

It might be considered unreasonable for fee income to be redistributed from high-income to low-income universities without a strong rationale, if this affects teaching and research at the former.

A radical step

If Australia imposes a levy on international student fees, it is likely some students will choose to study elsewhere.

Tuition fees will be increased by some universities in an effort to pass the cost of the levy on to students, rather than cutting expenditure.

If the levy forced universities to give up some funds for other universities, this would be a radical step, going far beyond current policy settings. The consequences of this – in terms of funds potentially lost from some universities – would need to be very carefully considered.

And if the levy also caused a major drop in Australia’s share of the international education market, it would be a self-defeating policy.