Ross Stitt reports that domestic politics around housing pressures and the cost of living - in the face of an upcoming election - sees Australia moves to limit international student numbers

Something strange is happening in Australia. The federal government is promoting legislation to reduce one of the country’s largest exports – education services.

Last month, the government announced that it will limit the number of  new international students that can commence their Australian studies in 2025 to 270,000. This will bring the number of students in the university and ‘vocational education & training’ (VET) sectors back down to pre-pandemic levels.

International education has been a tremendous success story for Australia. According to the Department of Education, it was worth $36.4 billion to the Australian economy in the 2023 financial year, making it the fourth highest source of export revenues.

And as the graph below demonstrates, it’s a growth industry.

Year-to-date international student enrolments by sector as at March, 2005-2024

Source: Parliament of Australia
(ELICOS stands for English language Intensive Courses for Overseas Students)

This success is attributable to a range of factors. Two key ones are the use of the English language in Australia and the country’s proximity to the large Asian markets driving much of the demand for international tertiary education services, particularly China and India. 

The quality of many Australian universities has also played a part. In the latest Times Higher Education rankings, six Australian unis placed in the top 100. Unsurprisingly, five of these had the highest number of overseas students among Australian universities in 2022 (the most recent available data).

In each case that was more than 10,000 students – Monash University (19,290), the University of Melbourne (17,316), the University of Sydney (16,912), the University of Queensland (16,376), and the University of New South Wales (UNSW) (11,599). These figures represented a significant proportion of each university’s total enrolments – 30% in the case of the University of Queensland.

Over the last fifteen years, the fees from foreign students have become a major source of revenue for many of Australia’s tertiary institutions, and the top ranked ones in particular. This has been reinforced by the higher fees usually paid by foreign students.

Domestic students have benefitted from this situation financially as their attendance has effectively been subsidised by the presence of foreign students. Of course, the Australian government has also been a winner in this situation.

There’s been another benefit from the influx of international students. Many highly skilled and ambitious young students have stayed on in Australia and made valuable economic and social contributions.

So why does the government now want to undermine such a national success story?

According to the ministers who announced the student cap last month, it will ‘ensure a managed international education system designed to grow sustainably over time’. The key is the word ‘sustainably’. And that’s where the politics comes in.

The headlines in Australia at the moment are dominated by Gaza/Israel/Lebanon. But the two issues that exercise the minds of a much larger number of Australians are housing and the cost of living. And with an election expected by May next year, the Labor government recognises the urgent need to be seen to be doing something to address those issues.

Immigration, both permanent and temporary, is perceived by many Australians as contributing to the housing shortage and to the excess demand in the economy driving inflation. The government has struggled to control immigration since its election in 2022, partly thanks to a strong jobs market with unemployment remaining low at 4.1%. The final immigration figure for 2024 is likely to be much greater than the target the government set itself. 

The hundreds of thousands of international students who have flooded into the country post-Covid are seen as part of the immigration ‘problem’.

Certainly, anyone looking for rental accommodation in central Sydney and Melbourne can attest to the adverse impact of high student numbers on the housing market.

The government hopes that voters will view the cap on foreign students as an effective mechanism to ease the housing crisis and take some of the heat out of inflation. It probably doesn’t hurt that foreign students can’t vote.

Needless to say, the student cap proposal has many opponents.

The Business Council of Australia argues that the cap will ‘damage the economy and deliver long-lasting harm to Australia’s fourth largest export sector’. According to the BCA, that sector contributed almost a quarter of GDP growth in the March 2024 quarter and ‘it seems entirely counterproductive to stymie that growth when we face economic headwinds’.

This is a view expressed by many in the business sector. However, others claim that businesses like foreign students because many of them work in part-time, often poorly paid jobs that are otherwise difficult to fill. 

Many of the universities are of course furious that restrictions are being placed on their intakes. Some are saying that it will damage the sector’s reputation overseas and that the resulting loss of fee revenue will trigger major cost cutting at home. The Australian National University, ranked 73rd in the world, says it will need to cut millions of dollars from its 2025 budget.

Interestingly, in the minutes of its latest board meeting, the Reserve Bank of Australia suggested that it’s unclear whether the student cap would in fact assist in the fight against inflation. The cap ‘would be likely to reduce aggregate demand (including for housing), but also lower growth in population and therefore the economy’s supply capacity’.

The legislation for the new system – the Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024 – is not yet law and the government may struggle to get it through the Senate.

Time is running out if the system is to commence in 2025. Universities have been informed of their individual student caps but it’s difficult to plan without certainty.

Australia needs to be careful. International education in English is a competitive business in the Asia-Pacific region. Rejecting foreign students could undermine Australia’s reputation as a welcoming and pleasant place to study.

And that could create opportunities for competitor countries, like New Zealand.

*Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.