Visa caps for international students are a very bad idea

Anthony Albanese promised Indian Prime Minister Narendra Modi that Australia “would facilitate the efficient and timely processing of student visa applications for Indian nationals”. It didn’t happen.

The economic, diplomatic and political mess that Labor is embroiled in on international student policy points to one thing. By mid-year the Albanese government is near certain to announce caps on international students entering Australia.

Such a visa cap is the antithesis of the way that Australia’s $48bn a year education export industry has developed in a relatively free market. The policy is risky, relying on government to accurately judge market conditions, and will have an unknown impact on Australia’s reputation as an educator of international students.

Nevertheless the feelers are going out to the international education industry to figure out how such caps can be implemented. It’s what the Albanese government pretty clearly believes is a political necessity as it goes into the next election.

Visa caps will formalise a policy that Labor has managed by stealth since last December when, in ministerial directive 107, Home Affairs Minister Clare O’Neil said her department would prioritise the processing of students applying to universities and other education providers who were deemed to have the lowest visa risk on the government’s assessment system.

What actually occurred was more than just a slowdown. The proportion of visas being refused also went up, which meant that students who met criteria that previously would have been accepted for a visa no longer were, and it wasn’t clear why. The higher refusal rate also caused universities and other education institutions enrolling international students to suddenly be assessed at a higher visa risk level, which meant their students were processed even more slowly.

Why is the situation such a mess? Let’s take the three adjectives above one at a time.

First, the economic. In 2023 Australia’s GDP growth was weak, only 1.5 per cent across the calendar year. The rapidly increasing numbers of international students in Australia during the year gave a major boost to spending. All of them have to eat, live somewhere, entertain themselves and of course they pay fees.

National Australia Bank’s economic team calculated that, of last year’s 1.5 per cent growth, 0.8 percentage points was due to growth in the number of international students. Without them we would have been close to recession. And students also do work, filling many casual jobs that are difficult to hire for in the current tight labour market. It means that an arbitrary reduction in the number of international students is an economic risk.

Now the diplomatic. With China expanding its influence in the Indo-Pacific, the Albanese government has invested a huge amount in developing close relations with India.

After the first annual Australia-India prime ministerial summit in March last year the joint statement said: “Noting the value Australia places on the sizeable Indian student community in Australia, Prime Minister Albanese conveyed to Prime Minister Modi that his government would facilitate the efficient and timely processing of student visa applications for Indian nationals who are offered admission by Australian universities and other vocational training institutes.”

This commitment is now a casualty of Labor’s priority to reduce student numbers. Indian students, because they have a high visa risk, are being processed slower and refused at higher rates than Chinese students, who are generally of lower visa risk.

The outcome is that high-ranking universities that attract high numbers of Chinese students who can pay the high fees, are doing fine. Lower-ranked universities are suffering, expecting to lose $500m revenue this year because of the visa slowdown.

Finally, the political. Labor faces electoral anger on cost-of-living issues and international students are perceived to be worsening the rental shortage and boosting rental costs. It will do anything to neutralise this as a Coalition line of attack. To outflank the Coalition and reduce the political risk, Labor is willing to take the economic and diplomatic consequences of putting an arbitrary limit on international students entering the country.

The question is how is a cap to be introduced? Is it by individual education institution and linked to how many students enrolled in the past? If so, then when in the past?

Is the cap restricted to the big cities where rental accommodation is in short supply, allowing students to have a visa if they agree to go to the bush, or a small city? Are some nationalities of students to be more restricted than others? At the moment, Chinese students are being favoured by default. How viable is this in the longer term?

What happens as market conditions change and there are shifts in demand and supply? How does a cap adjust to that? How do new private colleges servicing the international student market ever start up in a capped environment? How many students will they be allowed? Will student quotas be tradeable?

The truth is that a scheme to cap student visas is fraught with unintended and unforeseen consequences. It’s a dog of a policy.

But it will allow Labor to claim, before the election, that it has taken effective action to combat the rental shortage. Then, if Labor wins the election, it will have to somehow undo it.