What are the Implications of a Levy on International Fees?

The Interim Report of the Higher Education Accord includes the idea of a levy on international student fee income, that “could provide insurance against future economic, policy or other shocks, or fund national and sector priorities such as infrastructure and research” ​(Australian Government, 2023, p. 16).​ Proponents argue this could address sector-wide challenges such as concern that the government currently underfunds research and infrastructure.

The levy is proposed to channel funds from those institutions that receive high international student fee income to those institutions that do not support a variety of purposes. In 2021, for example, The University of Sydney collected the most fee income at $1.3 billion which was roughly 38% of the university’s total budget that year. In contrast, The University of Notre Dame Australia collected $5 million or roughly 2% of their budget that year.

Were it to be introduced, a levy that supported a redistributive function would be a radical policy step, going far beyond current policy settings and requiring consideration of the consequences of different design options. For a levy to support aspirations around research and infrastructure, it would likely need to collect a significant amount of money each year, with implications for international students and their universities. International students already contribute significantly to the public purse, and we estimate that the Australian government currently collects over $2.6 cent billion per year directly from international students’ charges and taxes.

A new levy implies issues around equality between students and raises key questions about whether it is acceptable to impose a levy on international students’ fees but not domestic students’ fees, and whether the levy should be imposed on all international students or limited to those in particular types of education providers.

The fear for many people is that it would be difficult to design a new levy that did not exacerbate negative sentiments among international students that they are seen as “cash cows”. Most international students already pay tuition fees significantly higher than the amount universities receive for domestic students.

Another issue is around the public redistribution of private fee income, and the consequences for equity between higher education institutions. This raises the question of whether it is reasonable for fee income to be redistributed from high-income to low-income universities. Five universities have had significantly higher international revenue than the rest in recent years, and depending on the design it is likely they would provide the lion’s share of the contributions. A straight 5% levy on international student fees for each university in 2021 would have collected over $430 million, half of which would come from just five universities.

There has so far been very little detailed discussion of what a levy would fund and how. The idea of establishing a ‘sinking fund’ to protect against volatility in the international education market, a kind of sovereign wealth fund for universities, implies that a reserve would need to be built up and hence hundreds of millions of dollars of fee revenue would be withdrawn from the sector for several years until a target was reached. To access funds to pay the levy, universities could respond by reducing expenditures or by increasing fees, with the balance of the two approaches determined by their circumstances and competitive market forces.

A major issue facing the levy proposal is the impact that higher fees could have on demand from international students. Redistributing private students’ fees away from the providers in which they chose to study has implications for the perception of Australian higher education. 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 we not contributing. Were a levy to cause a major drop in Australia’s share of the international education market, it may ultimately be a self-defeating policy.