The Minister of Tertiary Education Steven Joyce is correct in arguing on this page this month that revenue from international students can assist university finances.

Indeed the University of Auckland is already the largest contributor to New Zealand's $5 billion per annum export education sector and we have recently discussed with Mr Joyce our strategy to grow our international student numbers further. However, this strategy is not, as the minister implies, a solution to the chronic under-investment in our universities by New Zealand governments and students.

While international students create many social and cultural benefits for New Zealand, it is also true that they create financial benefits. At the University of Auckland, each international student generates on average a margin (in commercial terms, profit) of $7000 over that generated by an equivalent domestic student. This reflects the fact that the university is able to charge international students the true "market price" for their education, and they are willing to pay that price in increasing numbers, whereas public policy reduces the combination of the Government subsidy and the tuition fees we are permitted to charge local students to a level well below that price. As a consequence, most of the operating surplus generated by New Zealand universities comes from providing courses to international students. Without them, many universities could barely break even.

Simply increasing international student numbers is not the answer. This is because we have to invest in additional buildings and associated facilities in order to accommodate increased student numbers. We have about $1.5 billion tied up in assets to support 32,000 students - about $40,000 per full-time student.


The most effective way to benefit financially from international students is to increase the number of international students while simultaneously reducing the number of New Zealanders in the university. This explains a key difference between New Zealand and Australia.

While it is true, as the minister notes, that Australian universities have larger numbers of international students, they also have proportionally fewer domestic students. Thus, for example, the University of Queensland has 35,000 students, as opposed to the University of Auckland's 33,000. It has more international students (8700 vs 3900) but, tellingly, fewer domestic students - 26,100 compared to the 28,700 at the University of Auckland. If the University of Auckland were to achieve the same ratio of international to domestic students as the University of Queensland (25 per cent to 75 per cent) it would have to reduce the number of domestic students by 4600 and increase the number of internationals by the same amount. The margin generated by the university as a consequence of so doing would be about $32 million per year, just 3.4 per cent of our total operating budget.

Even if that were worth doing - and it is difficult to imagine New Zealand students and taxpayers seeing it as a solution - the international student market is inherently risky.

The number of international students at Auckland peaked in 2005 and then declined sharply following the high-profile failure of several private training organisations - failures which did great harm to the "New Zealand Inc" brand. It has taken us seven years of hard work just to return to those levels, far less achieve a real increase in numbers.

And while the Government is now doing a much better job of regulating at-risk providers, the danger of further failures or of other events such as epidemics interrupting the flow of international students remains.

The most revealing aspect of the University of Queensland (or any of the leading Australian universities) is that it has much higher revenues across all major sources - government subsidy, domestic tuition fees, international tuition fees and research - than do the New Zealand universities. Its total budget of A$1.5 billion ($1.9 billion), compared to the University of Auckland's budget of $930 million allows it to attract the very best students, employ the best staff, offer a wide range of scholarship and invest heavily in buildings and facilities. Not surprisingly, it ranks at number 48 in the QS world rankings, compared to 82 for the University of Auckland, the top ranked university in this country.

This is not a gap that can be closed by the $32 million margin we could generate by taking on an additional 4600 international students.

The Government's recently announced changes to the student loan system and the promise of consequential increases in university funding will have some effect in enhancing the quality of our universities. So too will additional international students. But these effects will be small. If we really want a top quality university in this country then all of us will have to be prepared to invest in it.

Stuart McCutcheon is vice-chancellor of the University of Auckland.