Student Loan Scheme Amendment Bill (No 2)

We now come to the debate on Part 3. This is clauses 63 to 68 and schedule 3.

I rise to take a short 20-minute call on Part 3, even if I have to read it several times in order to satisfy that criterion. I draw the Committee’s attention to clauses 63 to 68 of the Student Loan Scheme Amendment Bill (No 2), situated, as they are, on pages 46 and 47 of the bill as amended and reported back to the Committee, and not the original printed version of the bill, which was on the Table earlier and which, I think it is fair to say, did give rise to more than a little confusion, having, as it did, the old Part 2 in Part 2, which now resides in Part 1—[Interruption]—none of which is relevant to the interjections coming from that unruly mob known as the National backbench. You know, the extraordinary thing about that mob is that it will bray when there is something to talk about and it will bray when there is nothing to talk about, and I venture to suggest that we are in the latter category now.

Clause 63 is a very important clause. These are the amendments to the principal Act that apply for the years 2014-15 and later tax years. There is something we all know about the tax year 2014-15, is there not, colleagues? That will include the first year of the next Labour-Green Government, and it may well be with the New Zealand First Party in coalition. And it will be the first year in Opposition for members opposite—the first of their next 10 years in Opposition. They may think I am kidding, but no. In fact, I am deadly serious on this matter, because we are now in the inner entrails of this bill. We have gone beyond the transitional provisions, we have gone beyond the all-powerful “Henry VIII” clause, we have gone beyond the transition in Part 2, and we are down to the transition of the transition of the transition in Part 3, and it is really quite something.

If I read clause 63 for the benefit of the Committee and those riveted to their screens while the Committee is occupying itself with this matter of import, clause 63 says: “Section 4 amended (Interpretation)—In section 4(1), repeal the definitions of ‘annual gross income’, ‘annual total deduction’, and ‘pre-taxed income’.” That definition, right there, raises some very important issues, because the first one, “annual gross income”, is something that a lot of New Zealanders are lamenting because the median annual gross income has declined in both nominal and real terms since the current Government took office. So if there is one thing that New Zealanders in the middle of the heap know about annual gross income, it is that it is going down. They are worse off, and that is one reason why the 2014-15 tax year to which this refers will be the first year of the next Government.

Similarly, “pre-taxed income” is in this clause. It is a very important phrase, as it brings to mind the doings of the last 2 days: one failed tax has been shot between the eyes by the Prime Minister on each of the last 2 days. That is something of a record. We are holding our breath for tomorrow to see whether there will be a veritable trifecta of skeletal taxes lying slain upon the floor of the House, a mere flash in the pan of revenue history, rather like the reputation of the current Minister of Revenue, who has presided over these small, tinkering taxes where the grey hand of the State is inserted ever deeper—ever deeper—into the wallets of New Zealanders. It may be a laughing matter to the collector of dairy farms over there on the back row of the Government benches. That dairy farm collector may not trouble himself with small matters such as car-park—

I apologise to my honourable colleague. Perhaps he will get to fill in the other 15 minutes of his 20-minute call shortly. I would like to address clause 64 of Part 3, which is the clause that gives effect to one of the more significant changes in this Student Loan Scheme Amendment Bill (No 2), and that is the alignment of the definition of “net income” in the student loan scheme with that used in Working for Families. That is one of the two probably more significant changes amongst a raft of very minor technical amendments in this bill.

We feel in the Green Party that this alignment and this new definition of “net income” with that used by Working for Families is a sad missed opportunity to correct what is a very unfair element of the definition of income currently used under the student loan scheme and indeed for Working for Families. This unfairness, I think, became apparent at the time when the Government introduced the increased repayment rate under the student loan scheme from 10 percent to 12 percent, so that graduates now pay their student loans off at 12c in the dollar when they earn over the threshold, which is less than the full-time equivalent of the minimum wage. At that time what became apparent, looking at the definition of “net income” used for both the student loan scheme and for Working for Families, was that Working for Families entitlements are calculated based on the household’s income before student loan repayments are deducted. That is significant because, as I mentioned in my previous contribution, when we are talking about who is affected by the changes to the student loan scheme we are talking about graduates. Graduates are grown-ups who have lives, jobs, homes, and families. Many of them are eligible for payments under Working for Families, the definition of income for which this bill aligns.

Many young families have student debt and the changes, therefore, impact directly on families, and on the mum and dad New Zealanders I talked about earlier. What this means, and what is now in practice under the current regime, is that the higher repayment rate for student loans of 12c in the dollar essentially operates as a tax. It operates as a higher tax or a tax increase on those families because they get no corresponding increase in their Working for Families entitlements, but their income is less each week because they have higher student loan repayments. So they are actually out of pocket every week by a significant amount.

If we are talking about aligning the definition of Working for Families income with income under the student loan scheme, in our submission that needs to be aligned after student loan repayments have been taken into account. It is all very well to align them, as this bill does, but what this bill could have done, and fails to do, is correct that unfairness that Working for Families entitlements are calculated before student loan deductions have been removed. For many families this actually has had a significant impact in their weekly budget.

The second point I want to address on this point of aligning the definition of Working for Families income with the student loan scheme income is that they are not actually 100 percent aligned by this bill. The reason for that is that by definition the student loan scheme income is always calculated on the individual level because it is the individual borrower and their individual debt. But, actually, Working for Families calculates income at the household level because it is looking at household and family entitlements. What I would have liked to see is the Government explore that a little further before making the changes made in clause 64 in Part 3 of this bill, to actually explore whether it would be possible or practical to align the definition of income for student loan purposes with household income. I believe that that would make it easier—or allow for an amendment that would make it easier—for couples to help to pay off each other’s loans.

If I can just explain a little bit of what I mean by this. I believe that this would help to eliminate a significant gender inequality in the student loan scheme. What we know is that women tend to take much longer to pay off their student loans, and over their lifetime they have higher student loan debt because of the length of time they take off to raise children, and because of the penalties and interest that they have, in many cases, accrued before student loans were interest free.

An amendment such as the one that I am suggesting here, which again I think is a missed opportunity that this bill did not take, is that if you calculated student loan income at the household level you could allow an amendment to take place that would make it easier for partners to assist each other to pay off their loans. For example, if a woman, or even a man, has taken some time out of the workforce to care for children, their partner could continue to pay 12 percent of their income, although it should be lower, towards the student loan debt of their household, but they could split it between their own loan and their partner’s loan so that the woman—or indeed the man, but in most cases it is the woman—does not accrue a higher student loan debt over their lifetime. I think that would help to eliminate what is one of the significant gender inequalities in the student loan scheme. It could be achieved through what this clause here is trying to achieve in aligning the definition of income for student loan purposes with that used for Working for Families.

The bill actually does not go all the way. It goes part of the way to aligning that definition of income, but, because it does it only at the individual level and does not contemplate doing it at the household level, I think it is a significant missed opportunity to eliminate that gender inequality. It would be a complicated change to make, and I acknowledge that. We have had a number of complicated changes already to the student loan scheme, but I think it would have been great if the Finance and Expenditure Committee, or indeed the Government, had explored this opportunity in a little bit more detail, because for the purposes of the bill—aligning the definition—it would actually achieve that to a greater extent. It would make it easier for partners to help each other to pay off their student loans. As a partner who is about to pay off mine and considering helping my partner to pay off his, I think that would be great.

Both of these changes, I think, highlight the effect that I talked about in an earlier contribution, which is that although the Government and the members opposite like to talk about changes to the student loan scheme as if they will affect only those greedy, selfish current students who never had it so good, in fact the people affected by the changes in this bill and the other changes to the student loan scheme that have been made by this Government over the last several years are graduates who are grown-ups, who are living their lives, who are homeowners, who have families, and who indeed may be voters, potentially, for this Government.

I think it ignores that group of people at its peril and that it continues with these punitive changes at its peril, instead of looking at some smart amendments like those I have just outlined, which could actually make life and the weekly budget easier for those families who are struggling to make ends meet, but working very hard, working to pay off their loans, and working towards owning their own homes. There are changes we could make to the definition of income in the student loan scheme that would make things easier for those families. Sadly, the clauses in Part 3 here are a missed opportunity to do that.

In Part 3 of this bill, the Student Loan Scheme Amendment Bill (No 2), as my colleague the Hon David Cunliffe was saying, there is a variety of broader definitions of income descriptions, much the same as in Part 2. Here also there are definitions that are about broadening income descriptions. He mentioned the annual gross income and made the point that New Zealanders know a lot about that because it has been dropping in real terms under this Government. Wages in this country are indeed a big issue for New Zealanders in the light of rising costs and a Government that is not growing the economy.

Clause 65 provides the new definitions of income, and they are broader. That is indeed the intention of the legislation—to broaden the definitions of income to collect the extra million dollars per annum of revenue from 2015-16 onwards, which is captured in Part 3 of the bill, “Amendments to the principal Act that apply for 2014-2015 and later tax years”. That is where we see this really taking effect, albeit—again, as has been pointed out by numerous members of this Committee—they are very small, piecemeal measures. In many ways it is a lost opportunity.

The other point I have made is that in this bill we see many measures that are repealing earlier decisions taken by this Government, measures that in most cases have been repealed because they have proven too difficult to implement or too costly to implement when faced with an aged computer system that was built 20 years ago and for which the Government has not yet outlined a credible plan to rebuild. I am still hoping the Minister in the chair, the Minister of Revenue, will at some stage address our concerns about the ability of the Government to implement these changes and will outline a credible time line and plan for replacing this aged, decrepit system that is proving incapable of implementing Government policy. It is a serious concern that could see billions of dollars in Government revenue not able to be collected in the future.

Further on in Part 3 we see also some amendments relating to the repeal of provisions on the 10 percent bonus. This is something that we have seen also debated in the House previously, where this Minister, having introduced the 10 percent repayment bonus for students, has discovered that it was not a very effective policy and has repealed it latterly—yet another U-turn.

We see in these U-turns—on the car-park tax, the upcoming one on cellphones, the ones in this bill relating to measures that cannot be implemented, and, indeed, the repealing of provisions around the 10 percent bonus—a pattern emerging of two steps forward, three steps backwards. That is no way to run a Government. That is no way to run a Government. We need to see a Government that is taking bold measures in the tax area and, instead of debating how we are going to collect the extra million dollars, is considering the bigger issues that are facing our economy—for example, around the investment signal for export-led growth, the kind of change that a capital gains tax would make for the benefit of our economy, to see our economy grow and to see it compete with overseas countries, whereas right now we are one of very few countries in the OECD that do not have such a measure.

I come back to the provisions in the bill, because I think it is very important to stick to the clauses that are before us in this particular part of the bill. I am sure that you, Mr Chairperson, will agree with me on that. We see that in clauses 67 and 68 we have clauses relating directly to that repeal of the 10 percent bonus provisions, another failure on the Government’s part to implement policy. It is being forced here, through this legislation, to withdraw it again.

All of these measures that are ultimately positive, we support. That is why overall Labour will support the bill, because we believe that the changes in here that are substantive will make the repayment of student loans fairer. We recognise that it is pretty humiliating for the Government to be having to pass a good deal of measures that are repealing earlier measures that it brought through the House, thinking that they were improvements. We, of course, have made a little sport of that, but we have concern that Parliament is wasting time where it could actually be making bigger and better decisions for New Zealand.

Part 3 of this bill, the Student Loan Scheme Amendment Bill (No 2), and, in particular, clause 64, which I am going to speak to here, is where it really becomes clear what this legislation means for individuals. It is where we get to these definitions of adjusted net income and are replacing them in terms of gross income. We have heard speakers prior to me talk about this in terms of the impact that this has in terms of everyday life. We have seen earlier from this Government an increase in the student repayment amount, from 10c to 12c, which effectively makes the marginal tax rate of a graduate very high. I think that is something we need to consider in a very careful way, and it is in clause 64, in Part 3 of the bill, that this becomes very clear.

This is something that we have to give real thought to, because it is effectively this marginal tax rate, these very definitions we are seeing here, that is often the thing that drives young New Zealanders offshore, to go and live in other countries and contribute to the development of, and make contributions to, societies other than our own.

We hear a lot of rhetoric from the Government about the income benefit that someone with a tertiary qualification gets in New Zealand. I think that a few facts need to be put around this claim that we are hearing all the time from members opposite, because what we are seeing, in terms of OECD countries, is that the benefit you get from having a tertiary qualification in New Zealand in terms of income is much lower than in many other OECD countries. Our wages are lower, and there is a whole raft of reasons—which probably fall outside Part 3, clause 64, of this particular piece of legislation that we are looking at—as to why it is that we have these lower wages in New Zealand, but we have to face this reality.

I think that the New Zealand University Students Association gave a very useful submission to the Finance and Expenditure Committee on this piece of legislation. The association provided some facts around what an average student income looks like. An average student leaves a tertiary institution, after some study, with a mean debt of $17,176, and a median graduate income is $42,120. I will talk a bit more in a couple of minutes about how this is calculated. The average time to repay this debt is 5.2 years, with the real value of the loan repayments being 92 percent. What we see is that these 5 years, the very years when someone has finished their tertiary study, might be a time when they are looking, hopefully, be able to buy a home, and maybe start a family.

These are the things that actually get in the way, and it is these kinds of numbers that make individual New Zealanders make decisions every day to get on a plane and leave New Zealand. If we have a look at what I am talking about—and the mean debt and median repayment time is for a domestic borrower; I just want to make that clear. As the submission says, these figures are: “Based on: mean debt and median repayment time (for a domestic borrower) from the 2011 Annual Report on the Student Loans Scheme, graduate income (less than one year’s experience) from NZ Immigration Service, with 5% annual growth, a discount rate of 3.5% (reflecting borrowing cost + 0.5% risk).” I think it is really important to think about what numbers like this actually look like—living in your street, shopping at the same shops that you do, and going to the same schools that your children are going to—because these are the experiences of a generation of New Zealanders. A generation of New Zealanders now have student loan debt, and it is their children who are about to enter tertiary education, so what we have is a generation—

House resumed.

The Chairperson reported the Minimum Wage (Starting-out Wage) Amendment Bill with amendment, progress on the Student Loan Scheme Amendment Bill (No 2), and no progress on the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill.

Report adopted.

The House adjourned at 9.56 p.m.