Not saying what they're doing is right. Just saying that from a purely economic perspective, it makes sense. I don't think university should be purely economically driven, though.
Pay off for those respective industries, and the people in them. So why should taxpayers subsidize something that would be profitable and paid-for anyway? Government should be subsidizing things that the market won't pay for precisely because there're no money in it.
Paying for something that has little industrial use and doesn't boost GDP numbers would actually be idiotic and anti-market.
Governments often pump money into things seen as having long term benefits for a country. Examples: investing in agricultural independence, roads, phone networks.
An entirely free market would still have these. Government investment gives it an initial push to develop faster. Australia decided they have some fields they should prioritize for national development. The idea of people working in one industry or one company for life is long gone, so expecting a company to subsidize someone's education just isn't happening unless they're already in the company.
Furthermore, an entirely free market approach to art majors would probably have even fewer art majors. If governments didn't subsidize degrees or offer loans or funding or anything of the sort, nobody but the elite would be studying art history at the academic level at all.
So the government either remains completely neutral and funds things equally, it funds nothing at all, or it funds according to national needs. Some countries choose #1 or #2. Australia chose #3.
It’s not anti-market for a subsidizer to cut subsidies for things that don't produce things the subsidizer wants as effectively as other alternatives, so the direction of both the fee effects and the funding changes is sensible.
The relative size of the two changes (the subsidy changes being larger than the fee changes), which means that the university gets less for the job-ready degrees and more for the less-useful ones, however, is silly.
Historically that wasn’t particularly true, and presently it's only sometimes true.
> And when they do they try to find a major that has maximum overlap between their strengths, interests and earning potential.
I suspect that the share of applicants that does anything approaching an analysis that would support that conclusion is closer to 0% than 100%. You seem to be both making assumptions about motivation and rationality (in the economic sense) that aren't well grounded.
> You aren't going to make engineering any more attractive to someone by making it cheaper, if the salaries weren't already doing it.
At the level where the subsidy makes the difference between being able to afford the program at all and not, you certainly will. But even at higher income levels it'll make a difference, especially for people who aren't malign decisions on long-run economic analysis but more on “college is expected” and “it all costs the same, and X sounds fun”.
But if it's a money-making degree, you can get a loan for it and pay it off after getting a job. Affordability is unlikely to be a concern in that case.