Australian universities and other accredited providers would set their own fees from January 2016 under the policy, with the Government reducing tuition funding.
"Just how much tuition fees will rise is yet to be determined, and it will undoubtedly depend on the ranking of the university," Dr McCutcheon wrote in a memorandum to the university council.
"It may well make New Zealand universities more attractive to New Zealanders living in Australia and to Australian students."
Dr McCutcheon yesterday stressed to the Herald that it was not certain what changes might get final approval in Australia, and the resulting effect on fees. But if the planned changes did survive, he said the top universities would have to put their fees up.
"If the fees went up very substantially ... then there is probably some merit for Australian students in considering New Zealand as a destination," Dr McCutcheon said.
"Since the number of domestic students is capped by the [New Zealand] Government ... it would then raise the question of whether a more able Australian student would win the place of a less able New Zealand student."
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* Too many international students, says Shane Jones
However, Tertiary Education Minister Steven Joyce said it was unlikely that high numbers of Australians would come to study here.
That was because while they paid domestic fees, they were unable to access student support such as loans and allowances.
"But obviously if we got a sudden influx of Australian students, to the extent that it would have any impact on the number of places [available to Kiwis], we'd be looking at that pretty quickly."
The number of Australian citizens currently studying at New Zealand universities is small - last year 370 enrolled at the University of Auckland, and a majority had attended school here.
Foreign students costing us: Peters
The granting of work visas to 70,000 overseas students has reversed the benefit to the country of having foreigners study here, New Zealand First leader Winston Peters says.
Mr Peters made the claim during a speech to a crowd of about 100 at a Grey Power meeting in Mt Albert yesterday.
"If it is export education why would any overseas student be able to get a job here?" he said. "We are meant to be exporting education - that means we get a dollar from their economy for training a student in our economy. The way it is happening now, to try and keep the numbers up because it is flagging, behind the people's back, the Government is still calling it export education when it is not export at all. Our economy is now paying for overseas students' education here."
The figure of 70,000 had come "straight out of Government's books", Mr Peters said. The result was that many Kiwi students could not find jobs and so had to increase their student loans. "They are not getting a fair go in their own country."
The impact of foreigners was a strong theme in a speech that marked the start of New Zealand First's campaign. Superannuation entitlements were under threat partly because immigrants had been allowed to bring in elderly relatives, Mr Peters said.
Australia's university?
*The cost of many university courses in Australia is expected to increase from 2016. The University of Auckland expects this could make New Zealand institutions more attractive to Australians and Kiwis living in Australia.
*Australians can study in New Zealand for domestic fee costs and without the need for a student visa.
*The Government does not believe there will be an influx as Australians cannot access student support.
