Preseli Pembrokeshire AM Paul Davies has told the Welsh Assembly Government that it needs to see higher education as an investment, not a cost.
Speaking during a debate on the economic contribution of higher education in Wales, Mr Davies pointed out that English universities are better funded than Welsh ones.
He also highlighted the fact that for every £1 spent on educating someone at higher education level; they eventually return £5 in revenue such as taxes.
"The multiplier effect of public investment in higher education is currently about 5:1 however, the Higher Education Funding Council for Wales would like to see that figure doubled, and that is why it is imperative that the Assembly Government sees higher education as an investment and not a cost," said Mr Davies, who is shadow Welsh Education Minister.
"Higher education must be viewed as the driver of prosperity and as a sector that supports the development of skills and knowledge," he added.
"It will be key in helping Wales out of the worst recession that it has seen in 100 years."
Mr Davies also argued for closer links between business and higher education in Wales, arguing that it helped to keep entrepreneurship alive.
And he pointed out that, in real terms, there has been a cut to the education budget in Wales.
"It is clear from the Welsh Assembly Government's own figures that overall revenue spending for education in the budget has increased by only 0.9 per cent compared with 2009‐10, which is below the inflation rate of 1.5 per cent," he said.
"The financial position had led to well over 300 jobs being cut in Further Education, more than half of which are teaching posts."
