Taxation (Annual Rates and Urgent Measures) Bill

I raise a point of order, Mr Chairperson. Could I seek your clarification as to where the Committee has got to, because, as I heard your call—and I may have heard it incorrectly—Supplementary Order Paper 7 was just passed as part of Part 2, but according to the explanatory note most of the changes proposed by that Supplementary Order Paper concern Part 3. So I wonder whether your question concerned those parts of it relating to Part 2, or whether it concerned the entire Supplementary Order Paper 7. Forgive me if I misheard you, but much of that Supplementary Order Paper appears, according to the paper itself, to relate to Part 3.

The CHAIRPERSON (H V Ross Robertson): As I understand it, Dr Smith, the Minister’s amendments on the Supplementary Order Paper apply to clause 4B of Part 2. In terms of Part 3, the Supplementary Order Paper applies to clause 12.

I raise a point of order, Mr Chairperson. My point of order was to ask whether we had passed all of Supplementary Order Paper 7. I may have misheard; I thought it was the whole of Supplementary Order Paper 7 that we voted on just then. Most of the changes proposed by that Supplementary Order Paper concern Part 3, which we have not yet debated.

The CHAIRPERSON (H V Ross Robertson): My understanding, Dr Smith, is that we have actually passed only those amendments related to Part 2. Because Part 2 was the main part being debated, the amendments voted on related to Part 2.

I raise a point of order, Mr Chairperson. I thought I did hear your question, but I do not recollect hearing you say those parts of Supplementary Order Paper 7 relating to Part 2. But I may have misheard.

The CHAIRPERSON (H V Ross Robertson): No, you did not mishear. That is standard practice as to how it is actually done.

I raise a point of order, Mr Chairperson. Does that mean we will pass another question when we have debated Part 3, in order to pass the rest of those amendments?

The CHAIRPERSON (H V Ross Robertson): It does, and it will relate purely to Part 3.

This part of the bill relates to student loans. As Dr Cullen said to the vice-chancellors when he met them last week, if it had not been for this promise, they would have had a National Minister of Education sitting in front of them. He may well be right, but of course the electoral success of the promise of interest-free student loans does not guarantee that it is sensible policy.

In particular, one issue we have struggled with is to understand the costings. The Minister in the chair, Pete Hodgson, being a key Cabinet Minister, may be able to explain them to us. Can he explain what happened after the initial Treasury costing, which was that the effect on the operating balance would be $302 million in 2008-09, with a rising profile after that? How does he reconcile that with the most recent costing published by Treasury, which states that it will now cost $202 million with a flat profile over time?

I am looking forward to the Minister’s explanation of that difference, because, as he will recall, the costing of this policy was controversial. It was controversial because, in the first place, the Government would not release it, and, in the second place, estimates made by private sector bankers were very large and the Government disputed them. Then, in the last week of the election, the Ombudsman forced the Government to release the costings—the $302 million I have referred to—and, since the election, there has been a greatly reduced costing of $202 million. I suspect that part of the difference is that the Government will have in the Pre-election Fiscal and Economic Update a large, one-off write-off to the extent of a couple of billion dollars, because the Government has to look at the fair value of the loans with interest, as they are on the books, and compare that value with the fair value of the loans without interest. The Government will, no doubt, take that hit upfront. I would be interested if the Minister could enlighten us as to whether that will be the case.

That move is, of course, politically very attractive, because the Government has now managed to make an expensive policy with very bad incentives look like a cheap policy with incentives that do not matter. That is hidden by the complexity of the accounting around how the Government handles a diminution in the valuation of the loan portfolio at the same time as it accounts for interest that it would not have received, anyway.

I shall use an example of some of the effects that just cannot be accounted for in the costings. The parents of a student going off to university, under the existing regime with interest, would have been looking to support that student at university. That support does not appear yet, because the student has not gone to university yet. But because the loans now are interest-free, what will happen is parents will tell their children who intend to study that they will not support them, and that they must borrow the money instead. That is probably the effect that will have the single biggest impact on the cost of this policy. The Government denies any of those incentive effects, but what sense does it make to parents to fund their children on overdraft interest rates when those children can fund themselves on a zero interest rate? It makes no sense.

The Government defends the policy by saying that students will not be so smart as to borrow the money then put it on deposit somewhere, because they will need it while they study. Actually, many students will, but probably the larger effect will be the substitution effect—that is, substituting interest-free student loans for what would otherwise be private support. I would like the Minister to explain why the Government thinks none of that matters, because, of course, it does.

So those are some questions for the Minister. I want him to explain the difference in the two costings that Treasury gave us, because there is a difference of 35 percent—$300 million cut down to $200 million—and to explain just how the Government will account for the impact of the policy on the operating balance.

As I follow on from my learned colleague Bill English, I think he raised a very important point. It seems that Labour does not understand, or does not want to believe, that some New Zealanders will change their behaviour as a result of this policy. Labour seems to believe that students and their parents will not look at the changes in this scheme, and that students will not take out more money now that the loans are to become totally interest-free.

I say to the Minister in the chair, the Hon Pete Hodgson, that parents with half a brain will now tell their children who are approaching university age to take out the loans they have available to them to the maximum, and that if they are able to put whatever funding they have into an interest-bearing account, they will find themselves better off. Already I have spoken to some students who have worked out that if they do that and put their money into either a bank account or some kind of investment, be it their own student flat or another kind of investment that will earn them an income, they will be better off at the end of their degrees and in the years to come. I think it is quite naive to suggest that Kiwis will not change their behaviour. Of course they will. Where money is free and there is no cost associated with taking out a loan, anybody who has other financial loans will maximise the amount they have interest-free and use that to offset other loans that they have elsewhere, or will put money into an account where they can earn income. That is just common sense. It is less than economics 101; kids learn that sort of thing in maths at secondary school.

One of the things that does concern me, though, is the sort of incentive system that this policy continues to put in place in this country. It tells those parents who want to assist their own kids that they will be worse off and that there is now a disincentive to do that. As Bill English has pointed out, we will now see some of that private support crowded out by the Government’s becoming involved and saying that it knows best and that this system is being put in place to support students.

It was interesting to hear Dr Cullen talk about tax bribes. Well, what is this policy? It was the greatest bribe of the last election. Although Labour pretended that the costings had been done, it did not have a blind clue as to what the actual cost of this policy would be. The Prime Minister stood in the Chamber and said that Treasury had not done a costing because it did not cost Labour Party policy. We found out that that was not correct; Treasury had done the maths on it, and the maths did not look great. If Labour was not trying to be deceitful, why did it take the Ombudsman’s decision that it was in the public interest for the information to be released, and that it had to be released prior to the election, before it was released and we could see the workings had been done? Once those workings were released, it became quite clear that the political rhetoric leading up to the election and the workings on the policy that had been done showed quite different stories.

The interest-free student loan policy was quite clearly one of the biggest election bribes. In this case—sadly—it worked for Labour, but I think what has been done is a great disservice for this country. Not only will we crowd out private family support for students as they undertake their tertiary study, but we will now move to a situation whereby we actually force money on to young people and make them more indebted at the very beginning of their lives. One of the things that strikes me when I talk to students who have left university and gone on to work is that they did not understand what they were letting themselves in for when they cranked up their loans to buy a myriad of things. Money, particularly when it is interest-free, is easy to take on, and it is not until some years later that students fully understand that ultimately the money does have to be paid back. We will see a huge increase in the number of loans taken out by students and a huge decrease in repayments.

On the previous part, the member Katherine Rich was accusing me of going back 30 years into the dim past of the National Party and all the rest of it—years that National Party members would sooner forget, I might tell people—but I am going to do it again. I remember saying to one Dr the Hon Lockwood Smith, when he brought in the student loan scheme, that it would be bad for the young people of New Zealand because it would get them into the business of borrowing money for education, and we believed, and all good, sensible people of New Zealand believed, they should work for it, and the parts they did not work for should be put up by the State. Some people still hold to that policy. New Zealand First believes there should be universality when it comes to living allowances. We have moved as far as that. But we accept that the market should reign when it comes to what courses students take, and we accept that that will largely be judged by the person on the fact that they will earn more income when they leave university.

However, we had a situation at the last election, and I agree with Dr Cullen: I believe that this policy won the Labour Party the election. But National members do not say too much about the fact that the only thing that happened was they were trumped on this. They said: “We are going to lower the tax on student loans, and we are wonderful people.” They said nothing about how they could afford it on top of tax cuts. They said nothing about any of that. On top of tax cuts for everybody, they promised a reduction in the interest on student loans.

💬 Hon Damien O'Connor: They weren’t going to do it.

R DOUG WOOLERTON: Mr Damien O’Connor is close to the action and he tells me they were not going to do it. I suspect he is probably right. I was taking the National Party at face value, which I probably should learn not to do. I am naive and innocent. Even as I approach my more interesting years, I am still naive.

The Labour Party came in and said there would be no interest on student loans, and it won the election. Now we have a situation where National is saying that the world is going to be turned on its head because students are actually going to do what the Government said they should do and borrow for their education. Duh! I think Labour probably understands that.

But it is a matter of wanting better education for our young people—and we all in this Chamber want that, I hope. We want a better-educated workforce and we want New Zealand to be the most enlightened, best-educated country in the world. New Zealand First is supporting the bill, which incorporates this change to the regime of taxing students, because we uphold the principle of wanting better education for everybody in this country. We would do it in a slightly different way. We would do it in a different way from what the National Party proposed, but we would not be dogs in the manger and say that it should not happen, because we want our young people to succeed. We want a country where we can hold our heads up high and say: “We are the best in the world.” I remember my colleague Peter Brown, who is sitting beside me at this point, saying to me that he came to this country in the 1960s because he believed it to be an enlightened country. He believed that his children could be brought up better here, have a better future, and all of those things. He supports this bill because it is fulfilling those things that he came to this country for, and New Zealand First is proud to support him in that.

On listening this afternoon to Mr Woolerton, the former president of New Zealand First, one realises how interwoven New Zealand First has become in the Clark-Peters Labour Government. New Zealand First is now totally in the pocket of Labour, and I guess that is kind of sad for New Zealand, in some ways. But Mr Woolerton was quite right. He said one thing I do agree with: I did design the student loan scheme, as Minister of Education, in 1991. It achieved a great deal for New Zealand, by taking it from the bottom of the OECD, in terms of tertiary participation, to the top. In just 6 years we went from the bottom to the top. That was a very carefully designed student loan scheme, with appropriate write-off provisions to make sure that no loan could escalate.

We are now seeing that carefully designed student loan scheme being destroyed in an election promise that, I have to say, was the most breathtaking I have seen in all my time in this place. It was breathtaking for several reasons. One is that when Labour made that election bribe, it had no idea of how much it would cost. It had no idea of the impact on the Crown balance sheet.

💬 Darren Hughes: That’s wrong.

Dr the Hon LOCKWOOD SMITH: Darren Hughes says that that is wrong. On 23 November I asked the officials at the select committee for the full costs to the balance sheet of the policies in this bill. Their answer was that they did not know. That was from Treasury and Inland Revenue Department officials on 23 November, well after the election. I asked the officials the full costs to the balance sheet of the polices in this bill. Their answer was that they did not know that.

💬 Darren Hughes: It must be a mistake in the member’s notes.

Dr the Hon LOCKWOOD SMITH: They told us they did not know, so I say to Mr Hughes he should not mislead this Committee by claiming that Labour knew the cost of this policy prior to the election.

Darren Hughes should remember that Helen Clark, the Prime Minister, told Parliament that Treasury had not costed the policy. She sat in the seat in front of the junior Government whip and told this Parliament a lie.

💬 Darren Hughes: You can’t say that.

Dr the Hon LOCKWOOD SMITH: Well, what was it?

The CHAIRPERSON (H V Ross Robertson): The member has been in Parliament for a long time. He knows that he cannot use the word he used. I ask him to withdraw and apologise.

Dr the Hon LOCKWOOD SMITH: I withdraw and apologise. I am not sure how to describe what the Prime Minister said. She told this Parliament that Treasury had not costed it, point-blank. That proved not to be correct, because we revealed only a couple of weeks later that Treasury had costed it. Mind you, when we consider she is someone who signed paintings that she did not paint, someone who knifed a former police commissioner in the back to the media and denied it, and someone who claimed she had no idea how fast she was being driven across half of the South Island, I guess we should not be surprised at that. The integrity level of the leader of the Labour Party, New Zealand’s Prime Minister, is such that she would tell this Parliament that Treasury had not costed Part 3, when Treasury had costed it and there was no way Helen Clark could not have known that. She must have known that when she stood up from her seat, in front of Darren Hughes, and told this Parliament point-blank that Treasury had not costed it, when Treasury had. We should not be surprised that a Labour Party led by someone with as little integrity as Helen Clark has members like David Benson-Pope, who has no integrity whatsoever.

I want to come back to Part 3, because this part was breathtaking for these reasons. Not only does it involve a massive hit to the Crown balance sheet but it is also a massive con job. Students who voted for Labour as a consequence of this policy thought they would get cash in their hands. In fact, students will see nothing out of this provision until, through the taxation system, they have paid back their entire student loan, and then through the taxation system they will not have to pay any interest. Students were conned. They did not realise that. When I have talked to students since the election, they have asked me what I meant when I explained that. They were conned. There has been a massive hit to the Crown balance sheet, and Labour has conned thousands of students.

Unless one is a student and a scholar of ancient political history, one would not know that that was Dr the Hon Lockwood Smith. From the way he was describing Part 3, he had never been in a Government before. He used words like “breathtaking promise”, a “con job”, and said that people had to remember what had been promised.

I wondered whether that could be the same man who went up and down New Zealand to different university campuses, signing pledges promising that if student fees were not abolished, he would resign. “Honest Lockwood Smith” went up and down the country, a decade and a half ago, saying that. We have the documentation, which has been tabled in the Parliament of New Zealand, showing that Lockwood Smith went around the place—

Dr the Hon Lockwood Smith: I raise a point of order, Mr Chairperson. I am not allowed to say that member is lying. I have, through previous points of order and a personal explanation, explained to people like Darren Hughes, who do not know the facts and the truth, that the only pledges I signed promised to abolish Labour’s Government-imposed $1,250 student fee. I never ever signed a pledge that there would be no fees.

The CHAIRPERSON (H V Ross Robertson): That is a debating point and the member can take a call.

Dr the Hon Lockwood Smith: I raise a point of order, Mr Chairperson. When a member makes a personal explanation, as I have in the past about that issue, it is no longer a debating point. The Committee must take my word for it, and I can prove it because I have copies of those pledges. It is not a debating point. I would appreciate your correcting that ruling.

The CHAIRPERSON (H V Ross Robertson): The member has taken exception under Standing Order 116, “Personal reflections”. The member will withdraw and apologise.

I am happy to withdraw. What we now know is that Lockwood Smith went around the country talking to angry crowds of students, saying: “I will abolish Labour’s tertiary fee of $1,250. That’s the good news; the bad news is that I’ve got a $3,000 Tory fee on the way. I’m ‘Honest Lockwood Smith’. I’ll resign unless I can make sure your fees are more than $1,200.” What a farce!

The last National Party member who should have been allowed on his feet in this debate this afternoon is a relic from the 1990s like Lockwood Smith. Most Ministers of Education in New Zealand visit campuses; that is part of the job. That man, when he arrives on a campus, has police protection. When he leaves, he does not leave by the door—oh no, he is far too important. He leaves by the bathroom window! So loved were his policies, so respected was his integrity, so visionary was his approach to the student loan scheme that he left via a toilet window. So we will not hear any more from Lockwood Smith. I want the National Party to continue to—

Dr the Hon Lockwood Smith: I raise a point of order, Mr Chairperson. That junior Labour member should know that a member cannot tell lies to this Parliament. What he is telling the Parliament are simply lies. I have never ever left a university campus by the bathroom window, or any other window.

The CHAIRPERSON (H V Ross Robertson): Can I just point the member—[Interruption] Members know that when a point of order is on the floor there is to be no sound whatsoever. That is disorderly conduct. I refer the member to Speaker’s ruling 127/4: “As long as the member who made a personal statement remains a member of the House, the member’s personal explanation may not be debated or otherwise challenged, even where it was given in a previous Parliament.”—Mr Speaker Hunt, 2000.

I raise a point of order, Mr Chairperson. Does that mean that the member has made a personal explanation about what type of window he did climb out when he was being harassed?

The CHAIRPERSON (H V Ross Robertson): No—

I am seeking clarification. Footage on the television news showed that former Minister of Education having to climb out a window away from students, whom he could not explain his policies to. [Interruption]

The CHAIRPERSON (H V Ross Robertson): The member will not trifle with the Chair.

This policy is a fantastic policy. Part 3 is good Labour policy, and I am delighted the National Party keeps opposing it. I was very interested to hear Katherine Rich confess that she thought the Labour Party might have clinched the election on the basis of that policy. The bitterness in her voice was clear, because, as one of the National Party’s centrists, she knows that this is a good policy. The problem for National members is that they are obsessed about the transitional provisions, obsessed about what might happen between now and April. The point they keep missing is that all that this policy says is that students have to pay back what they borrow from the Crown. Rather than paying that back with interest, we are asking students simply to pay back their student loans—the amount they borrowed.

But National members are saying that students will refuse to pay it back. What they do not know, because so few of them had student loans, is that people repay the loan via the Inland Revenue Department system, through PAYE, whereby 10 percent of every dollar earned over a certain amount is deducted from source. There is no choice in this; it is part of one’s taxation requirements. Therefore, when people apply for things like a mortgage, hire purchase, or to buy a new car and, they have to list all their debts, they have to include their student loan. So that has an impact on their ability to borrow in the market place, which, supposedly, is an area the National Party knows a lot about. So it is in a student’s interest to retire that debt as quickly as possible, and the fastest way to do that is to pay back only the amount borrowed.

This is good, sensible Labour policy and I hope National keeps opposing it. National is going down the drain.

What a juvenile contribution from the member for Otaki! Mind you, when he reaches puberty he will be devastating!

I want to concentrate, rather than on personalities, on the issues. Part 3 introduces a scheme that is unworkable and unprincipled. It is very much unprincipled. It was not carefully thought out, as Mr English said, nor was it reached as a result of policy discussion within the Labour Party, nor was it costed by reputable economists. It was a rushed response to poll results indicating the election was slipping away from the Labour Party. It was a hastily devised bribe, whose principal architect, the member for Hutt South, may have some skills when it comes to 5-minute horizons but cannot think long term. And one does not have to be someone who thinks only medium term to know that before the 3-year period is out this bill will be back before the House for further amendments. It was the worst sort of policy, devised in the heat of the campaign, and Treasury would say “amen” to that.

The second point—and I would really like the Minister in the chair, the member for Dunedin North, to wake from his slumber and answer this hypothetical example—is that this policy discriminates against tradespeople. What about the tradesman who wants to set up business as, say, a plumber or an electrician? He or she has to go to the bank to obtain appropriate loan finance, and has to pay that loan back with interest. That is, quite frankly, as it should be. Any person setting out to build a business who takes out a loan, in the expectation that over 20 or 30 years he or she is going to make a lot of money, should pay back that loan with interest at commercial terms. Compare that with a student—say, one in the position of the member for Otaki—who leaves secondary school at the age of 17 or 18, and, not knowing what he or she wants to do, goes to university to study some useless subject like peace studies, the sort of subject that equips one well for a career in the Labour Party; that person can obtain an interest-free loan, study that politically correct rubbish—which my friend the member for North Shore is going to dispose of—then drift off into the workforce. Of the two hypotheticals I have mentioned, who actually contributes to the New Zealand economy? Obviously it is the electrician or the plumber. These are the people who grow the economy, these are the people who provide useful services, but there is nothing for them in this scheme.

Quite apart from discriminating against tradespeople setting out to build their businesses, this legislation also discriminates against hard-working families who send their children to universities. The parents are the ones who should be obtaining tax relief. They are the ones who have nurtured their children, raised them, and got them to the point where they can go to university and, provided that they study the right subjects, get ahead.

The third point I wish to make is that the legislation is unreal. The Deputy Prime Minister said that one aim of the policy was to encourage skilled New Zealanders to invest their skills in the New Zealand economy, but it will not achieve that end. New Zealanders will invariably travel overseas for their OE, and very little can be done about that, and that has been the case for years. One hopes that young people will come back to New Zealand to invest in their country, but that is no reason to give them interest-free loans. They will come back if they know they can get ahead in this country, and that means our ensuring that, for example, taxes are not as punitive as they are now.

I remember well the legal services market, having practised in the law for 25 years; the pattern was that lawyers would go overseas, spend a few years in a large law firm, and come back to New Zealand. The reality is that because of the state of the New Zealand economy, because of punitive taxation, they now go overseas at the commencement of their career, to Australia more likely than not, or to England, and they never come home. Our not getting the tax rates right will keep New Zealand students overseas. One need mention only the legal services market, but it applies to medical students, accountants, engineers, and other graduates of our universities. So students will not necessarily be attracted by this scheme to stay in New Zealand. They will be attracted back to New Zealand only if—[Interruption] I do wish the member for Otaki would listen. They will come back to New Zealand only if they can contribute to an economy that has low taxes. So my advice to the member for Otaki is to vote against this part, because New Zealanders will not come back if they are going to be saddled with this insane scheme.

I am very happy to rise to support Part 3, which deals with the amendments to the student loan scheme. Are not all the arguments we have heard very familiar? As I sit here listening to National Party members rise to their feet and say that this measure will mean doom and gloom for the country, that young people will be ripping off Treasury to the tune of billions and billions of dollars, and that it will send us right down the gurgler, I am thinking: where have I heard all this before? I heard all this before when in 1999 Labour said it would abolish interest on student loans while students were studying. We heard all this before, and did students act like the National Party members would? Did parents tell their children to go out and rort the scheme, like all the National Party members would tell their children? No they did not. It is nice to know that the National members have so little faith in the future of this country that they think that whenever students see an opportunity to take out money to pay for their education, their instant thoughts will be about how they can rort this scheme.

I do not think that National members know anything about the incentives of paying back a student loan. I wonder how many in the National Party currently have a student loan or have had a loan, of say $20,000 or $25,000, that they have had to pay back. I wonder how many of them have found—as I did, and as my colleague Darren Hughes does, as we both still have student loans, although my student loan will be gone by the time this policy comes into place—that the biggest disincentive to repaying a student loan was the interest charged on it. When I left university, my student loan was much, much higher than the amount I had borrowed, because of the interest while I was studying. Dr Smith was very, very proud of that policy—so proud that he did not turn up to our university to talk to students about it when he was invited to.

💬 Darren Hughes: The window wasn’t big enough.

Exactly. This measure in this bill provides a real incentive, because the biggest incentive to getting rid of one’s student loan and to be able to plan for the future, buy a home, and have a family is to see a light at the end of the tunnel for a debt that one has carried on one’s shoulders for a long time.

Students do not have any choice about paying their loans back. It is not as though they can suddenly finish university, get a job, and think: “Well, I’m not being charged any interest, so I’m not going to pay anything back.” They are compulsorily paying back at the rate of 10c in every dollar they earn. So since I started working in 1996, when I left university, I have been paying 10c more in every dollar than every other member in this House, and I can tell members that it is a huge, huge incentive to pay off my student loan and see that go.

I do not think we will see the incredible rort that the National Party members think we will see. Of course, they will go out there and try to convince students to rort it. They will be on the campuses with their National Party and their “Young Nationals—Blumsky’s Team” T-shirts, and saying: “Come on, rort it, rort it, rort it.” But I do not think students will do that, because when I went around campuses during the campaign, students were actually really grateful for this policy. They were sick of politicians like Dr the Hon Lockwood Smith, who went around signing pledges that he was going to get rid of a $1,200 tertiary tuition fee, then got into Government and said: “Well, I did, but I replaced it with a $3,000 one.” Students are sick of those kinds of politicians and sick of being the political football that they have been for a very long time.

We need to do something bold with student debt. Student debt is a huge problem. We all know that. We can all pretend that it is not a problem. We can all pretend that grandparents and parents are not worried or concerned about their children’s student debt. Parents will still be worried when their children graduate from university with a $20,000 student loan, even though it is interest-free. They will still be concerned about the fact that their son or their daughter owes $20,000 and will have to put on hold a lot of decisions they would otherwise have been able to make a lot more easily if they did not have a debt to repay first.

We would not even be having this huge debate if the National Party were not incredibly worried about this policy. National members know how much this appeals to students, parents, and grandparents who have seen the real effects, and to families who have not been able to afford to put their kids through university. They have seen the effects—the way it drives people overseas, the way they have not made the repayments while they are over there, and the fact that they have decided not to come back. Members should go overseas and ask anybody over there with a student loan: “What is the No. 1 issue you consider when you consider returning to New Zealand?”.

💬 Hon Members: Tax!

Come on! Oh, please! The No. 1 issue is student loans every single time. This is why National members are still sitting on the Opposition benches—they have never understood what matters to the young people of this country—and they will continue to stay there as long as they continue to be as arrogant as they have been about this policy.

It is wonderful, is it not, that so many Kiwis start up small businesses, and luckily stay in them, because they become the lifeblood of New Zealand. People start on the road to building their futures as a part of the university of life—the “university of small business’’, trying to make some money. A guy, for example, goes to a bank and says he is about to start a small business, and he asks for a loan. The bank manager says: “Of course you can have a loan. I need your house. I’d like your house as collateral for the loan.” Well, ouch, that hurts, but nevertheless, the man says: “OK, that’s fine. But if I’m giving you my house, Mr Bank Manager, can I please have that loan interest-free?”. The bank manager says: “You’ve got to be joking! Do you think I’m stupid? That is totally irresponsible because that is not the way the big world operates. There is no such thing as free money, Mr Small-businessman, because you’ll go broke.”

So let us look at Part 3 of this bill. What signals are we sending these students about the way the big, wide world operates? Dr Cullen wants to give students in New Zealand free money. There is no such thing as free money. Students need to learn that they do not get it easy in the big, wide world. They will not get things like interest-free loans. Dr Cullen is misguided on this one. We can help these students by letting them learn the real lessons of life. Dr Cullen should tell students that if they want to pay their loans off, they should go and get a part-time job, and he should change the tax levels on the money they will earn in that part-time job. He should make it so that they are not paying secondary tax of 33 percent. Let us have a rate of 19 percent, as John Key indicated quite recently.

Why, I ask the Minister, do we not teach students that there is no such thing as free money and that there is in fact a big upside to life if they do in fact pull their finger, if they have aspiration and ambition? It is not fair, I say to Dr Cullen, that a very large section of our community, a group called small-business owners, is getting whacked around the head by his tax burden, by his compliance costs, and by high interest charges when it is those people, those small-business owners, who pay him the very high taxes he will then give away to another group, called students, who will receive a very unfair privilege from his very big-spending Government, in the form of an interest-free loan.

I want to know what the Minister will say to those small-business owners who go to the “university of small business”, trying to make some money. What will he say about Part 3 when he goes to those small businesses and says: “I’ve given free money to students but you will have to continue to pay those very, very high taxes.”? Those small businesses are the lifeblood of New Zealand but Dr Cullen will cripple them in order to give students free money.

For the benefit of those who may be just now tuning in to this debate on their radios, I point out that we are debating the Taxation (Annual Rates and Urgent Measures) Bill. We are now on Part 3, which relates to the amendments to the student loan scheme to give interest-free loans to students.

I am hugely concerned about the provisions of this part. I have had those concerns increased by listening to Moana Mackey say that no one is massaging this change to his or her own advantage. Let me just say to her that I have a number of examples, but I have enough time to give only one. When this proposal came out the principal of a high school, who I do not think would have ever voted National in his life, said that as soon as the interest rates came off while students were studying, he gave one very clear instruction to his kids. He had three kids in tertiary education, and he said they should draw down every single dollar that they could draw down. He said that his oldest daughter, who was finishing a double degree, after 5 years had a student debt of $71,000, but she had an investment account with $41,000 in it. So for the Government to say that no one is making use of interest-free money shows its limitations.

If Government members wish to cast aspersions upon the intellect or thought processes of National members, then perhaps it is time for them to reflect entirely upon whether they have understood the complexities of this situation. For example, Dr Bollard is hugely concerned about New Zealanders borrowing money, so what does he do? He has put up interest rates nine times in a row, as a disincentive to borrowing. But suddenly we have interest rates being lifted off student loans. What will happen? In one part of the economy interest rates are going up and up as a disincentive to borrowing, but in another part students will have to pay absolutely no interest. What will they do? It is absolutely clear that this measure will increase borrowing. Without a doubt, that reaction will follow. I suggest that any students who do not participate in that neither deserve, nor are they likely to get, their qualifications, because of their limitations in understanding the first principle of borrowing. There is absolutely no incentive for any student whatsoever to get involved in repaying his or her loan any faster than the prescription for paying the minimal amount extracted through tax payments.

I have some understanding of the implications of tertiary education costs. At one stage my wife and I had four kids all drawing down on student loans in the same year. Our kids have now pretty much paid back all of their student loans because they got in, rolled up their sleeves, and did that. The repercussions from doing that, now that they are in their 20s, are that they own their own homes. They know about borrowing and the responsibilities of paying back loans. It is a gross naivety on the part of the Government to presume that the impact of this measure will not increase student debt. It will have an impact on the responsibility for clearing that debt, because without interest no disincentive whatsoever is applied against borrowing.

I am appalled that we are doing this to an economy that needs to instil responsibility and create an environment where there is some equity between students and the rest of the community. Mr Bollard, in order to create a disincentive against borrowing, is continuing to increase interest rates. What conclusion do we draw from that? Does the Government not accept or believe that Mr Bollard’s actions are the appropriate ones to stop us from borrowing? Does it not accept that that reaction has come from us over-borrowing as a country, and will that not happen to students? Clearly, it will. The disciplines of having a loan, understanding the responsibilities of a loan—

💬 Simon Power: It’s not easy.

Exactly; it is not easy. But that discipline is completely gone now. National absolutely believes that education—

I move, That the question be now put.

I commend the members of my caucus around me who have spoken so wisely and fully about the bribe of the election loan. I also take the opportunity to point out to members opposite that I do not recognise too many of them as being representative of the people I come from—that is, the people who roll up their sleeves, take their towel to work, and earn a living, having made a decision to back themselves when it comes to earning a living. From that point of view I take this opportunity to say, quite frankly, that the university of life is where we get our best value. This interest-free loan stuff devalues the workplace as a learning place. What I am increasingly hearing from employers is that we are breeding a generation of people who are not aware of what a full day’s work is.

My view is exactly as other National Party members have said—that the cost of a tertiary education is an investment in a person’s future income potential. That makes sense to me and to an enormous number of New Zealanders. On that basis, it appals me, and I find it quite repugnant, to see policy being pushed through—solely for the purpose of winning an election—that disenfranchises the majority of New Zealanders. I endorse and highly value education, but what I see here is a very warm fuzzy policy that denies what New Zealand was in the past and what it should be in the future. Courage and enterprise are what made New Zealand great.

I am concerned that as Dr Cullen steps forward into the tertiary education scene to ensure that we have value and high-quality education, he actually spawns, through free student loans, another wave of people becoming students. I am totally opposed to this policy. Quite frankly, the best means to address this issue was tax relief. If former students had had that money left in their pockets, they could have shown a bit of prudence and paid their loans off sooner.

I move, That the question be now put.