Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill

I rise to speak now to the Committee stage of the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill, which is where we get down to some of the nuts and bolts around this legislation. But I have to say, to begin with, that it is very timely the legislation has reappeared on the Order Paper now, because between the time this bill was first introduced and referred to the Education and Science Committee, and the time when it has come back for its second reading, a number of signals have come from the Government about tertiary students, and in particular about the loan scheme. Here we have legislation that Labour will support, but about which we are unsure there is a long-term prognosis.

Most recently we have had the Prime Minister’s statement, at the beginning of this session of Parliament in 2010, when he referred to the fact that the Government would “take a careful look at the policy settings around student support”. That led me, and other Labour members, to ask what on earth that meant. What does that mean? Will the Government make student allowances and loans harder to access? In the drive to cut costs, is the Government seeing the cost of student loans and student allowances as simply an impost on the Government coffers, without recognising the extent of the investment they represent in tertiary education?

A Government of a different hue, particularly if the hue were red, might have seen fit, in fact, to invest more in tertiary education, not less, in order for New Zealand to escalate out of a recession, and in order for us to equip ourselves as a country with the kind of economic growth and development we aspire to, and with the kinds of wages and incomes we aspire to. But the only signals we have received from the Government are signals that contradict Part 1 of this bill, and those signals are about making things harder for students.

This bill—and most of the relevant provisions are in Part 1—in fact extends the scope of student loans to others who live in what has been quaintly called for a long time “the realm of New Zealand”. At least it now appears quaint, but it is those countries such as Niue, Tokelau, and the Cook Islands, which are constitutionally and in every other way dependent upon New Zealand, and which will now be embraced and brought into the scope of the student loans provision that currently exists.

So here we have a bill that extends the scope of student loans at a time when the Government is saying that it will cut back, or look at cutting back, on opportunities for people to access tertiary education. Let me just underscore that point for a moment, by referring to a statement made recently, an article in the paper that appeared recently, about the Universal College of Learning, the polytechnic centred in Palmerston North with satellite campuses in Wanganui and Masterton. Its chief executive, Paul McElroy, has been saying he will have to cut back on student admissions in order to meet the Government’s requirements—to cut back on student admissions and entry to the Universal College of Learning.

That is a tragedy. Just at the moment when we are looking for people to upskill and reskill, this Government is putting in place pressures and parameters that will make our tertiary institutions turn students away. The student cap is not something set in stone; it is something negotiated. This Government should lift that cap in order to ensure that we have the kind of skilled workforce that will take us into the future. People in tertiary education, whether in a trade or an apprenticeship, or at a polytech, wānanga, or university, will be the people who will provide the economic development of New Zealand, and the future sustainability of that economic development. But that is being shut down by this Government at exactly the time when we are looking at legislation to extend access to tertiary education.

We in Labour believe in extending that access. We also believe that students should pay back their loans. Loans are not called loans for nothing; they need to be paid back. Therefore, there should be some incentives, and this bill also provides additional incentives to encourage people not to default on their loans but to do their best to repay them. As a rejoinder, a complementary clause, in that respect, the bill also extends the hardship provisions. This bill extends the hardship provisions so that in the case of students legitimately not being able to repay their loans at the rate that has been determined, there is scope for the hardship provisions to be enacted beyond the immediate tax year. That is important.

So we do not think that the bill is unbalanced, in that respect. Yes, it raises the cost of defaulting from 10c in the dollar to 15c in the dollar, but it does provide additional hardship coverage. That represents an investment, but this Government, by its signals from the Prime Minister, and more recently by the very explicit declaration of the new Minister of Tertiary Education, Steven Joyce, has shown that it wants to make it harder. The Government wants to make it harder to access skills and education, and that is what the problem is here. The problem is that we have a Government talking out of both sides of its mouth, and that is problematic. It will be problematic in the long term, and it will be problematic in the short term, for institutions that are under extraordinary pressure at the moment, and that are in the situation, like that of the Universal College of Learning, of turning students away.

That is not what should be happening in the escalation out of a recession. It is short-sighted of this Government, and it will cost us dearly in the future. There are some things that a Government must invest in. Other Governments are doing so. Australia, the United States, and the UK are investing heavily in tertiary education. This Government is going in the opposite direction, at 100 miles an hour, and that is wrong; it is not appropriate. Although Labour supports this bill and the provisions in Part 1, we need to set this in context. A dangerous collision is about to happen in the Government’s tertiary education policy—a dangerous collision. We have people aspiring to upskill, and to improve themselves.

This is not just about going to university. This is about accessing tertiary education opportunities across the gamut. We have seen what the Government has done with adult and community education, which is low-cost, accessible education in the community. The Government has axed it. It has disappeared off the face of parts of our country, and it limps on in a skeletal form in other parts. That is a disservice to the skills development that needs to occur in this country. This bill, which Labour supports, goes in a different direction.

Kia ora, Mr Chair. He mihi nui ki a koutou, kia ora. To answer Carmel Sepuloni’s question, I am one who has a student loan and was a student last year, and I am excited about the opportunity to participate in this debate. I will talk a little about the reasons why the Green Party is opposed to this bill. I first started studying in 2000, towards a Bachelor of Arts degree at Victoria University, and of course, because my parents are not wealthy, I had to take out a student loan. Ever since then, every couple of months I receive a new letter in the mail from the Inland Revenue Department saying how big my student loan is, and it is so discouraging to have to look at that $30,000 figure. Like many people of my generation, I want to buy a house, I want to start setting up a superannuation fund, and I want to put money aside for my son’s education so that he does not have to take out a student loan, and this letter is one of the most discouraging ones I ever receive in the mail.

Ever since the student loan scheme was introduced, students in New Zealand essentially have been paying an education tax. Every fortnight 10 percent of my gross pay is deducted straight away and paid towards my student loan repayments. What we are talking about in this bill is, for some, like a tax increase. I congratulate the decision made in 2005 to reduce the interest payable on student loans. When I first started studying in 2000, I had to pay interest on my loan while I was studying. I thought this was ridiculous. I think we need to listen to the students associations on this issue, the other people who can talk for students who call this bill unmanageable and unaffordable. The student loan scheme is a public good. We cannot be looking at it as though it is just a cost to the economy. This scheme is a public good. If we are to increase our GDP, if we are to race Australia in wage increases, we need to make education more accessible. We need more people developing skills, if we are to live in a sustainable and innovative economy.

This bill makes some changes to the student loan scheme. Some are good, some are all right, and some are bad. I turn first to the good changes. The bill extends interest-free loans to borrowers in Niue, the Cook Islands, Tokelau, and the Ross Dependency, and to students enrolled with a New Zealand education provider or engaged in full-time study overseas under a formal exchange programme. This is a good move. It extends the interest-free student loan provision, which was such a benefit to me, to other students. This provision supports our Pacific neighbours and builds stronger relationships. I turn to the changes that are all right. This bill replaces the interest rate, where applicable, and sets it by formula. The proposed formula is identical to the formula currently in use. The change is to take it out of regulation, and put it into the principal Act. We are fine with this provision.

Then there are the bad changes. This bill enables the Commissioner of Inland Revenue to increase the standard rate for deductions from salaries and wages from 10 percent to 15 percent. For borrowers who have failed to have the correct deductions made, the increased deductions will apply until any under-deductions, including late repayment penalties, have been fully repaid. Compulsory student loan repayments already kick in at a very low threshold. Increasing the deduction to 15c in the dollar will have a severe impact on some borrowers, their families, and their children. The current threshold is set at $19,084 gross. I ask whether any members in this House could survive on seeing 15 percent of their gross income going straight back to the Inland Revenue Department, on top of GST increases, rent, food, and other costs. For some, this is another tax increase that they will be seeing this year. An amount of $19,084 is very hard to live on. I ask whether any members could live on that amount.

What do we need to do with this bill? The Green Party believes that the student loan scheme is already a heavy burden on many students on low incomes, and on students who do not have high-paying jobs after they leave tertiary education. We oppose all initiatives that increase that burden. Despite the useful technical amendments—and we support the idea that students in the Cook Islands, Tokelau, and others should have the benefit of interest-free student loans—we will not be supporting this bill.

The CHAIRPERSON (Lindsay Tisch): Before I call the next speaker, I say to the member that when he goes for the call he must remain standing. If he were to sit down he would forfeit his right to speak. I knew the member was going for the call so I was happy to give it to the member. I say well done.

Firstly, I acknowledge the member who has just resumed his seat, Gareth Hughes. We enjoyed his maiden speech, and it is good to see him participating in this debate as a student loan holder. I had a student loan, too, but it was in the bad old days when we had to get our loans from a bank, rather than from the Government. Yes, it did look discouraging for a pretty good while.

Labour supports the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill, and I might say I still do not understand why the Greens do not. Much of it is about extending the coverage of the student loan provisions, and that has to be good. In particular, we support the extension to students living in Realm of New Zealand countries, because they deserve the same constitutional privileges in this regard as people living within the standard New Zealand territorial boundary.

I will begin by taking a step back and positioning this bill within the general ethos of the Labour Party’s approach to the question of tertiary study. It is fundamental to us—and it will always, I believe, be fundamental to us—that all citizens have the same, if you like, ethical value and moral worth, and they all deserve the same opportunities to thrive and to make the very best of themselves in life. That is why we are for the many, not the few. We think that if opportunities are spread equally, not only do we improve the welfare of our community and strengthen our economy, because equal societies perform better economically, but we provide social mobility. We provide the opportunity for the son or daughter of—I used to study in Wales—a miner to aspire to all the same opportunities as the son or daughter of a doctor does.

That approach is something that many members in this House have benefited from. Even some members opposite make a big deal of growing up in a State house or benefiting from the State education. What angers us is when we believe that members opposite are pulling up the ladder after themselves. Those kids who went to the State school or benefited from the State house have an extra obligation to make sure that today’s generation has the same opportunities that they had.

That is why we are always a little suspicious when there is, I have to say, some ambiguity. The ambiguity is not so much in the bill as in the statements that various Ministers and members opposite have made. The Prime Minister, for example, said that he wants to take a careful look at the policy settings around student support. Well, we wonder what that actually means. The policy is pretty clear: a student can take out an interest-free student loan, and approximately 75 percent of the costs of a student’s tertiary study in New Zealand is covered by the State. That is so we do not create worse barriers to all young New Zealand people having access to education.

As the Opposition spokesperson on finance I am well aware that that could not be more important than during a recession. Large, large numbers of young people are unemployed. Over 45,000 15 to 19-year-olds—12,000 more than at the same time a year ago—are unemployed. That number increases to over 72,000 young New Zealanders if we include the 20 to 24 age group. As my colleague and friend Carmel Sepuloni noted, Māori and Pasifika students, and I would add students from migrant backgrounds, are overrepresented in those statistics, because in a recession it is last on, first off. In my electorate of New Lynn, which I am passionate about, 13.5 percent of my constituents are Pasifika, 9 percent are Māori, and, wait for it, 23 percent are of Asian origin, many of them brand new. By the way, the average income of the Asian population in my electorate is lower than that of either the Pasifika or the Māori, because they are the most recent arrivals and are struggling to make their way in the job market. It is absolutely essential, if we are to walk the talk about being a proud, independent, egalitarian country that stands up for decency, fairness, and the Kiwi way, that we have an education system that is open to all.

Members opposite often talk about freedom. Well, freedom is not just the absence of regulation, folks. Freedom and personal responsibility can be real only if we are free to do something because we are empowered and resourced to do it. There is an old philosophical debate about the question “Am I free to dine at the Ritz?”. Well, there is no law against it, but, guys, if we cannot pay the bill we cannot eat there. You are free to dine at the Ritz, and you are free to get a tertiary education—not you, Mr Chairperson; I am sure you had a fine education—one is free to get a tertiary education, only if one can get a student loan to meet the costs of attendance, and if one is not charged exorbitant fees for the privilege of doing so. Labour is now, will be tomorrow, and will always be 100 percent supportive of a strong tertiary education system with universal access to it.

I commend a couple of things in this bill. I have mentioned the extraterritorial extension. Also, I echo my Green colleague in saying that as a former Associate Minister of Revenue I support the idea of moving the formula into the primary legislation, and not leaving it in regulations. First, the formula is too important, and, second, I think moving it settles any argument about whether the regulation should be amended. It takes pressure off the Minister when it is Parliament’s voice that has set the formula. That reflects the importance that Parliament should accord to a good student loan scheme.

As I have said, the inbuilt irony—and I do not want to be unfair to members opposite—is that we keep getting mixed signals from National members about whether their hearts are really in it with regard to the student loan scheme. Steven Joyce admitted that endorsing it in 2008 was only a political call. Well, it seems that for that Minister everything is only a political call. What would he support even if the focus groups told him not to? What is so sacrosanct to Mr Joyce that it is beyond polling? I do not know what it is—and he has been in this Chamber for 15 months.

By the way, I say to Mr Joyce—if he is listening—that a single millimetre of broadband in the ground would be a really good idea. There was about $300 million worth ready to go 15 months ago when he cancelled the Broadband Investment Fund. That, of course, is very important to students, because they are high users of broadband. I slip that in there, as they say—surgically insert that broadband point. It would be a diversion to go on about the parlous state of the telecommunications industry at the moment, so I will stop there. I am sure Mr Joyce is having a very busy day—apparently not as busy as the Prime Minister’s, however. He will be very concerned about the conduct of the House and the shambolic nature of the Government’s business. What an interesting week it has been for the Government, has it not? It throws the House into urgency for such matters of colossal importance as this bill. Worthy though it is and supporting it as we are, why are we debating it in urgency in the dead of the morning? Why are we doing it in urgency? Why could it not be accorded a normal legislative process? Is the Government’s management of the House so terrible that it has—

💬 Catherine Delahunty: Yes.

Yes, I believe it is. I think we have seen that demonstrated. I take the opportunity to commend our whips—Mr Mallard and Mr Hughes—and Mr Hipkins, who has been supporting them. I think we have seen a pretty good example of constructive use by the Opposition of House procedure to assist the smooth functioning of the House. Of course, we are very grateful for your role, Mr Chairperson, and that of the Assistant Speakers, and the role of the Office of the Clerk, in assisting the Government to get through its morning.

I come back to the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill. It is definitely worthy of support. Labour will support it, because we are not about petty politics. We are about doing what is right for New Zealand, and we are happy, as an Opposition, to see the Government doing things that we agree with. We are not here just to oppose, carp, and whine; we are here to do what is right for New Zealanders. The difference between the two sides of the House is that we are about the many, not the few. Too often we see members opposite doing what is in the interest of the few, not the many. Today we stand behind this small bill, which further strengthens and broadens access to education for all New Zealanders.

Tēnā koe, Mr Chairperson. I was on the Education and Science Committee that examined the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill, and I found it a positive experience. Green members have a positive view of the bill, even though we are opposing it. We are not carping and whining, as much as asserting the value of a student loan scheme that does not punish people who are already in trouble. That is why we are voting against the bill.

There were only five submitters to the committee, and only two of them made oral presentations. They all made valid points. Everyone was supportive of the extension of interest-free loans to borrowers from the Pacific and the Ross Dependency, etc. In relation to those students undertaking full-time overseas study under a New Zealand Government - approved formal exchange programme, there was some debate over the detail of that second proposal.

The New Zealand University Students Association made some really important points when it appeared before us. As the body representing a large number of students, its voice is regarded by us as being particularly pertinent to any bill that amends the student loan scheme. Many of us have theoretical or parental interest in how the scheme works, but the New Zealand University Students Association is working on the front line of the effects on students of this credit and debt system. The association supported much of the bill, including the technical amendment allowing borrowers returning to Aotearoa New Zealand, who wished to repay their loans before meeting the 183-day requirement for an interest-free student loan, to be able to do so. It strongly supported that amendment. However, it strongly opposed the Commissioner of Inland Revenue being able to raise the compulsory repayment deduction from the salary and wages of borrowers to 15c in the dollar when payments were overdue.

Green members were at least part of stopping the Inland Revenue Department from putting penalties on students whom the department itself had failed to notify of overdue debt. As the association pointed out, this is the worse possible time, with unemployment, and especially youth unemployment, increasing, and the increasing cost of living, to add extra penalties to people who are indebted. I know that some members of the select committee will never agree with me, but some very poor people are not lazy and unmotivated. They just do not have enough money to cover all their costs. We have encouraged poorer people to see education as the solution to poverty, and to go and get that education. We have made them pay for that education, and now we are punishing those who are not able to keep up repayments. At the end of their studies there is absolutely no guarantee for many people, including women, migrants, and refugees, and tāngata whenua and Pasifika people—let alone students with disabilities, who are the most discriminated against group of people in this entire country in terms of employment opportunity—to get a well-paying job that will help them keep up with the level of debt, and to have a consistent earning record that will allow them to keep up with their payments and not get overdue.

Some of the discussion in the select committee expressed a highly punitive approach to the problem of unpaid student debt, which is similar to comments I hear in this Chamber and elsewhere about beneficiaries. There are the good and the motivated, but then there are the bad and the disorganised, and the latter must be made to pay. This kind of thinking is a result of the scheme itself. It has not only created inequity but it has exposed inequity. Some of us were able to contribute to some part of our children’s educational costs, and some of us were not, but a loan is a loan and it must be repaid. All of this is inevitably unfair when the core of universality is abandoned in favour of market forces, and the bloodless coup of the 1980s is still framing our education system and its debates, our accident compensation, our health debates, and our economy as a whole.

There is always one question to be asked of each bill before the House: who really benefits? In terms of this bill, the Inland Revenue Department will benefit. But who really cares about the social chaos that ripples outwards for every increase in student debt repayment rates? On that basis, we oppose this bill.

I will touch on something that Gareth Hughes said in respect of commending the Labour Government for taking interest off student loans in 2005. I have to say, as someone who had a student loan, that prior to that happening I did not see my loan go down very much; I need to mention that.

💬 David Garrett: Did you graduate?

Yes, I tell Mr Garrett that I graduated. I will do something along the lines of what Maryan Street was doing and just look at aspects of this bill in relation to the public comments that have been made recently on the student loan scheme and the National Party’s history with respect to the tertiary education system in general. But I will do my best to stick to the bill.

We have discussed Labour’s support for the aspect of this bill that will mean that those from territories of New Zealand—Niue, the Cook Islands, Tokelau, and the Ross Dependency—will be able to have interest-free student loans. One thing has just come up in discussions with colleagues. I guess this question is directed to the Minister in the chair, the Minister of Revenue; it would be nice if he were listening to my question. We support these students getting interest-free loans when they return to their homeland, whether it be Niue, the Cook Islands, Tokelau, or the Ross Dependency. My question is whether the Government has taken into consideration any additional measures or mechanisms that may need to be put in place to ensure that those students who return to the Cook Islands, Niue, Tokelau, or the Ross Dependency—I do not know who lives there—actually have some sort of mechanism for paying back their student loans. That is one thing we do not see in the existing bill at this stage; I have asked my colleagues who were on the select committee, and they are unsure about that one, too. So we would like a response from the Minister with regard to that question.

We totally recognise that it is important that those who wish to return to the territories of New Zealand have the opportunity to do so in order that they can contribute to their people and to their communities, but we need to make sure that some measures are in place, because if they go there for a lifetime and they have left this country with a $40,000 student loan, then we would like to see that it be paid back.

That is one aspect that we have covered. I will just talk about that aspect, too, in relation to what we have seen recently with public comments on the student loan scheme. This bill is basically saying that we support our students from the territories of New Zealand, and that we provide them with the same opportunities and provisions, with regard to interest-free loans, that those who live in New Zealand get. But I am concerned about the public comments that allude to the fact that this Government may go down the track of making student loans less accessible, which will unfortunately affect those who are marginalised or under-represented in our tertiary education system as it stands.

The reason I am raising it is that on the one hand it looks like we are supporting Pacific students from territories of New Zealand to be able to go back to their countries and contribute there, but on the other hand it looks like this National Government is at the same time going down the track of limiting the opportunities for students who need to access student loans, so that they can do that. That is a very valid concern, and I am sure that even though we are in the Committee stage in discussing the bill, public comments that have been made recently on the student loan scheme also need to be taken into consideration, as in some ways it feels like there is a sense of contradiction in respect of what this bill is saying and what is being said publicly.

When we look through Part 1, we see that another aspect of this bill is that late payment penalties will be put in place for those who are not using the correct tax codes and for those who may be perceived to be trying to rort the system in some way in respect of actually paying off their student loans when they get into employment. We support that aspect.

It is great to have an opportunity to speak to the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill. In particular, I make note of the part that extends our responsibilities to our relations from Niue, Tokelau, and the Cook Islands. I think that as a country we need to realise that we are not just an isolated island in the Pacific; we have responsibilities to other countries that depend on us.

We also have a responsibility to Māori, to make sure that Māori have full access to tertiary education, so it was with some concern that we heard that the Minister for Tertiary Education, Steven Joyce, had his eye on student loans. We are not quite sure what that means. A lot of research describes how we need to make tertiary education more accessible for Māori, and the Starpath research conducted out of Auckland University is something that we need to follow. We need to make it a lot easier for Māori to get into tertiary education—not just Māori, but also our Pacific Island relations—instead of making it harder.

I think it is really important that we realise that student loans are loans, not gifts, and that people who take out loans have to repay them. It is good to see in the bill that the Commissioner of Inland Revenue is able to increase the standard rate for repayment deductions from salary and wages from 10c in the dollar to 15c, for borrowers who have failed to have the correct deductions made or to pay any other amount when it was due. The increased deductions will apply until any shortfall, including any late payment penalties, has been fully repaid. It is really important that we understand that that provision is in the bill.

The Prime Minister has made the statement that he thinks that some students do not take their study seriously, so they tend to drop out, fail, or not complete studies in the time they should. But many people do not know exactly what they will do when they finish university; they take different courses. My brother, for example, started his tertiary training doing a degree in business studies. Part-way through the first year he realised that it was not for him, so he moved on and swapped to a Bachelor of Arts in Māori. That, again, was not enough for him. He ended up studying to become a lawyer, and he is now a very successful lawyer. I was one of those people who went to teachers college and did not have to take out a loan. I went to teachers college after the system was in place that paid people to train to become teachers. I was in the middle of my training before the student loan system came about, so I do not actually understand what it is like to have to repay a loan for study. I know that some people have loans that are bigger than many mortgages—

💬 Chris Hipkins: Bigger than Ben-Hur.

—bigger than Ben-Hur, as my colleague Chris Hipkins says. That is one of the factors that make it difficult for Māori to study at a tertiary level. The whole financial situation makes it really difficult. I am talking about a lot of friends and family up north; we struggle to get them to succeed at school in the first place. Then when they do succeed at school they find the financial barriers to move into university are too great for them, and they do not go on to tertiary study in the first place. So the potential of the Minister to remove the interest-free element of the student loans would have a detrimental impact on the number of Māori who want to go into tertiary education.

I was seriously concerned with the comment earlier on from the Hon Maurice Williamson that a bit of slash-and-burn never hurt anybody. The distance that some people on the opposite side of the Chamber have from folk on the ground who do struggle in these situations, really concerns me. It is almost like saying that a bit of poverty never hurt anyone.

I move, That the question be now put.

I am very pleased to take a call on the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill. I wanted, in particular, to ask the Minister in the chair, the Minister of Revenue, a question about the grace period clause in this bill, which is clause 24. This seemingly small and innocuous clause is actually incredibly important. At the moment, when student loan borrowers are advised of their outstanding loan balance, if they repay that amount within 15 days then the interest over that period is cancelled. This bill extends that grace period out to 30 days. My question to the Minister is: how did that 30-day period came about? I know it is a nice round figure; it is a month. I would like to know what went into deciding that a 30-day period would fix this problem. It can be difficult for ex-students who are overseas to make repayments. I have had people contact me who find it extremely difficult sometimes to get their payment in, particularly when they are in a country where they cannot wire money easily. I had a friend who was working in Africa who found it incredibly difficult to work out how to get the money back within the time frame. I am not sure that even 30 days would have been enough for my friend to qualify for this grace period.

This is an issue that I would like the Minister’s response on. Even though it does not seem like an important issue, sometimes it can be the difference between people deciding whether or not to come home. If they cannot send money easily, if it is too hard, and they will not be able to qualify to have their interest cancelled, then that may be the point at which they say that they have all this interest piled up, but it has been made a whole lot worse, so they will just stay overseas and never come back to New Zealand. Then we would never have the loan paid off, but more important we would not get value from the tertiary education that the New Zealand taxpayer has paid for, alongside the person as well, when he or she studied in New Zealand. I would appreciate the Minister’s comments on that.

I will also briefly comment on extending this provision to New Zealand territories, which I think is important. During the work that I have done with the Commonwealth Parliamentary Association, I met someone from the Cook Islands, who in October last year said to me how desperate they were for this provision to come in. I think we have always been good global citizens. We do not want to pull people away from their homes, particularly when their own economic development is so reliant on their best and brightest being able to return home and not having a financial disincentive to doing that.

I commend the contribution from the new member Gareth Hughes. It was nice to see him getting up on his pins so early in his parliamentary career. I know this has become a bit of a time for telling old war stories and one-upmanship, but my colleague Grant Robertson and I went through university at the absolute worst time to go through, which was in the 1990s. Mr Hughes and Carmel Sepuloni went through in 2000, which I understand was bad enough. I know how important the incentives are in this legislation for paying back a student loan. A lot of people who jump to their feet have never had a student loan and do not really understand what it is like to have one. They do not understand what it is like for students to feel, when they graduate, that they will die with this loan because it just gets bigger, despite the fact that they are making repayments. The push to leave the country is then very, very high. In my case, I graduated as a scientist, and scientists do not earn a lot of money in this country. Therefore, I did not earn a lot of money and I had a loan that was growing day by day with compounding interest.

That is why this legislation is so important. It is important for our Pacific colleagues and the people in the Ross Dependency, which, again, is very useful for scientists. We do some fantastic climate change work down in the Ross Dependency. This may mean that ACT will vote against this legislation now, but it is important that those students are also included in this bill, and I am very pleased to support it. But I would appreciate an answer to my question on the grace period, so we can be sure that it was arrived at by research and considered thought, rather than just being picked because it was a month.

I will also comment on the hardship clause, and commend the Minister for this. I have had people come into my office to say that they have found the current hardship relief clauses, which were unintended consequences of the previous changes to the Act, very difficult to deal with and inflexible in dealing with their own particular hardship situation. This has become a far more difficult issue in the recession. I would be interested in the Minister’s comments as well around what else will be going on in this area. When people have to pay an extra 10 percent of their income towards a student loan, that is a lot of money.

I take the call at this point because there have been some 10 speeches in this debate so far on the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill. I think I have been asked three specific questions, and there is one from the second reading that I also want to respond to.

Before I do so, it is perhaps important to place this debate in a wider context. A lot has been said about what may or may not happen with regard to the rules for eligibility and the way in which people might take out student loans in the future. The responsibility for this legislation, and my responsibility as the Minister of Revenue, rests with the administration of the student loan scheme, whatever shape or form that might be in. As part of that portfolio, I have to be mindful of a couple of facts. We have a student loan outstanding debt liability—call it what you like—of around $10 billion. We have somewhere in the order of 540,000 student loan borrowers with outstanding balances. We have about 40,000 student loan borrowers offshore, and when we sought to identify them and get their up-to-date details a couple of years ago, we managed to get just under half of those people back into contact with us. The point is that we have this massive debt, which speakers on both sides have acknowledged, that we need to manage. So these changes—and some other changes that were contained in a discussion document released late last year, which will be the subject of legislation later this year—are about making it easier for people to meet what we all regard as their repayment obligations.

It is against that backdrop that I will comment on the questions that have been raised so far. Carmel Sepuloni raised the question about the repayment mechanism for students in what we quaintly term the realm countries. Before I answer that, I will comment on Moana Mackey’s point. I think she is absolutely right when she talks about the benefit for students in those countries of access to the student loan scheme. One of the drivers for me in being keen to promote that was a visit to the Cook Islands a couple of years ago. I talked to senior school students about their aspirations for their futures and about the practical difficulties they would face, not in getting access to New Zealand universities but in funding their study when they came here. So that was a very important move. Carmel Sepuloni asked what will happen, though, once they complete their studies and return to their country of origin—hopefully, to make that economic and social contribution that this is all about. I draw her attention to the provisions of the bill, which I do not have right in front of me; it is a very long clause number. Students will be required to determine their income level and advise the Inland Revenue Department of that, and then the process for getting their repayments on an annual basis will be put in place. This is a point I will return to in response to some of the other questions.

I also make the comment that the changes we are contemplating at the moment will make it much easier for those students, as well, in terms of moving to an electronic base for repayment so that the system, in time, becomes more like the way in which we conduct our banking operations. Students will be able to access their balances and make their repayments as their circumstances fit. That will apply to all students, but it will be particularly beneficial to students in the realm countries.

Let me come to the question of the grace period. I have to say that there was no particular science to the choice of the 30-day period.

We did think that because the major beneficiaries of this change will be students who are overseas, 15 days was probably a little tight in the circumstances. But with today’s technologies and communications, even using the member’s example of the deepest parts of Africa, or somewhere, we thought that 30 days was not an unreasonable choice. Once we bring in the next leg of this legislation, which is in terms of the electronic basis for the system, I think that that operation will become quite manageable, but obviously all of these things will be kept under constant review.

During the second reading debate Chris Hipkins raised the question of the partners of diplomats and whether they would be eligible for the extended provisions. That is a much more complicated question than first appears the case. We do not have, within the student loans legislation, a particular provision with regard to that category of person. What we do have is a requirement that a borrower, or the partner of a borrower, is also eligible if he or she is resident for tax purposes in New Zealand during that period. The particular problem that arises for all people who are offshore is the definition of “tax resident”. In respect of the specific question of the status of diplomats and their partners, this matter has been considered by the Ministry of Foreign Affairs and Trade, the Inland Revenue Department, and the Ministry of Education. The conclusion that was reached was that this was an issue that was beyond the specific ambit of the student loans legislation to address, but I guess that it is a matter that will be between those agencies and, again, kept under some form of review. If issues need to be addressed, they will be picked up at that point.

I conclude simply by going back to where I started, and by pointing out to the House that what we are doing here is making a much more effective management process for a very large investment by the New Zealand taxpayer—$10 billion. The vagaries of Government accounting systems mean that that $10 billion is actually shown as an asset on the Crown’s books, so it is incumbent upon the Crown to do what it can: first, to recover that funding; and, second, to make it easier for those who are making repayments to do so. This legislation, and the legislation I am foreshadowing later in the year, will be all about achieving that objective.

I will briefly respond to the comments the Minister made regarding the partners of diplomats. I thank him for that explanation, and I appreciate that it is obviously an issue that is far more complicated than something that can be dealt with in this bill. I hope it is an issue that will not fall through the cracks. Partners of diplomats are leaving New Zealand for the good of New Zealand to be part of representing New Zealand overseas, and it seems very unfair that the person whom they live with could be eligible for an interest-free loan but they themselves might not be eligible for an interest-free loan. I hope that that, in time, is something that will be able to be addressed more fully.

I pick up on a comment the Minister made about the size of the asset that is the student loan scheme. I agree it is a significant amount of money on the Government’s books, but we also need to consider it in the wider context of the value of tertiary education, as I am sure the Minister himself does. It is an investment in the people of New Zealand and in building up the skills of our workforce. If we want to have a much more productive economy, one in which we all enjoy a higher standard of living, then encouraging people to move into all forms of tertiary education, whether it be universities, polytechnics, or even workplace training, is something we want to encourage. I hope that whenever we talk about the student loan scheme we will consider it within that context.

I want to talk about one or two of the technical amendments in the bill, and, in particular, the increased deduction rate that is covered in clauses 6 and 7. In effect, these changes will allow the amount deducted from a borrower’s salary and wages to be increased from 10c in the dollar up to 15c in the dollar. The amendment is aimed at borrowers who have failed to have the correct deductions made and have other overdue amounts. This is a change we support, but I want to talk a little bit about the way in which the threshold at which somebody has to make those deductions is established.

Every year, up until last year, the threshold at which somebody has to make deductions from their salary has been increased in line with, I think, the rate of inflation—it might be the consumer price index; I am not sure exactly what the mechanism is. But it has been adjusted each year so that that threshold remains the same in real terms, and that was not done in 2010 and 2011. In the statement the Minister put out just before Christmas—I called him a Grinch at the time and I apologise to him for doing so; I think he is a very unlikely Grinch. [Interruption] No, he was Santa’s little helper, I think, in the photographs in the paper.

In the statement he put out at the time he said that the decision to hold the student loan repayment threshold at the current level for the coming year takes into account the current economic climate and the very significant costs of this $9.6 billion asset to the Crown. I think we need to be clear that although we are talking about a fairly small amount of money, the principle behind it is, I think, is a really important one in that we are asking the borrowers of student loans to shoulder an extra share of the effects of the tougher economic climate.

The other point the Minister made in his statement is that although the impact on individual borrowers is likely to be minimal, the effect of maintaining the current repayment threshold is expected to lower the overall costs of the scheme to the Crown. I think we need to be really transparent about that. If the Government is setting out to lower the cost of the interest-free student loan scheme, then it should be really upfront—I know that the Minister was upfront in his statement but it is not something that many people have picked up on—because that will have an impact, particularly for those who are just near the threshold for making repayments. It is more significant for them than for somebody who is earning a significant amount of money.

Although we are talking about a fairly marginal amount of money, it will be more significant for someone on a very low income, right down there at that threshold level, than for someone earning a higher income. We need to be really clear and upfront about that, and I would certainly encourage the Government in future years to continue making those adjustments to the threshold and not to let this be seen as a precedent for future years.

I can accept that it was probably a one-off for last year, but we would like to see that issue addressed in future years. I hope that when it is addressed this year there will be some retrospective nature of that to catch up with the fact that that threshold was not adjusted last year.

I turn now to the interest-free loans for borrowers returning to New Zealand. I refer to clause 16, which inserts new section 38AM.

I will pick up on the questions around the increased deduction rate, as well, and I also have another question for Mr Dunne in that regard. We have heard from the Green Party already in this debate about its concern over the notion that the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill, and clauses 6 and 7 in particular, will allow the amount deducted from a borrower’s salary and wages to be increased from 10c to 15c in the dollar, if the borrower fails to make deductions or has an overdue amount. Those on the Labour side of the Chamber can understand the motivation. New Zealand has an interest-free loan scheme, it is a good scheme, it is allowing people to pay their loans back a lot quicker than they previously have, and it is a scheme driven by the motivation of having people stay in New Zealand. We are extending that in this bill to other countries in the Realm of New Zealand, and that is good, so that people will contribute to the New Zealand economy. The bill has two purposes, and we understand that those purposes are important. The change in it, in fact, backs up the notion that it is important to stay in New Zealand and that we will create those incentives to do that.

I note that clauses 6 and 7 will give the Commissioner of Inland Revenue the right to make judgment calls, and that is what my colleague Mr Hipkins was speaking about before. Those judgments will be very important and significant calls for some people. I have had a particular case in my electorate office this year of a couple who went to the UK and did not make repayments while they were away overseas. They came back to New Zealand and, for a variety of reasons, had some issues with making further repayments. In some senses this change would offer them a path for how repayment could be made, so, in fact, there is a positive to this. But my question for the Minister in the chair, the Minister of Revenue, is around how this change will be promoted. One of the big issues we have had with this scheme is people simply being unaware of what was required of them, particularly when they went overseas. A number of people would ring up electorate offices, and when I worked for the New Zealand University Students Association many years ago, they would ring up; they were simply unaware of what the requirement was when they were overseas. Initially, the scheme required people to pay back $1,000 a year or one-fifteenth of their income while they were away overseas, and people had difficulty making those kinds of adjustments and arrangements to their affairs.

My question for the Minister really is, having understood the logic of giving the Commissioner of Inland Revenue the right to make these increases in the deduction rate, what will be done to ensure that people are aware of that, that they understand what their obligations are, and that they understand perhaps something of the criteria for how the commissioner will make those judgments? I think it is very important because already we see that there is an ability to reduce the payment if it will cause serious financial hardship, and that is good. That is an important caveat to put on this, but we do not want ourselves in a situation where we have a large number of people going overseas unaware that they could face increases in the deduction rate if they do not meet their obligations at the other end of the scheme. I look forward to the Minister taking a call on that and giving us some further information.

Another of the technical amendments that I want to draw some attention to is the hardship relief provided for in clauses 19, 20, 21, and 22. This is something where the Government deserves to be congratulated. We have seen a number of situations in which people find it very difficult, and, ironically, regarding the same couple who came to see me, this could have been a legitimate area where they could benefit because the issues and problems they had with their income were not happening in the immediate year when they were seeking relief. The hardship relief clauses are an important amendment to the scheme because we should not fool ourselves that the student loans scheme is a complete panacea when it comes to supporting students through their study. The student loans scheme puts a very serious obligation on those people who borrow from it. They have to pay back the loan from their salary at 10c in every dollar, and if they do not meet their repayments after this bill is passed it will be up to 15c in the dollar for some people.

That repayment is a serious obligation and it brings me back to a comment I made in the second reading when Steven Joyce said that the Government would be looking at different aspects of the scheme and that it needs to tighten up some of the rules. He made the comment that this loan was unlike others because it did not have an incentive to pay it back. Well, the incentive is the 10c in the dollar. The hardship provisions in this bill, which effectively loosen those hardship provisions, are a very important response to the fact that 10c in every dollar over $19,000 earned has to be paid back. I think $19,000 is a very small amount of money to be earning before paying back the loan, so the hardship provisions provide an ability to make the student loans scheme a lot fairer. As I said, the Government deserves to be congratulated because it has brought this up, but we need to ensure we do not underestimate the importance of some people having access to those hardship provisions because for people earning $19,000 it will be difficult to make repayments.

Mr Chair, I hope the reason you have given me the call last out of the Labour members who were seeking it is not that the Hawke’s Bay Magpies have beaten the Southland Stags the last two times they played. But I would not make any such assertions, and I do not propose to.

I have a question for the Minister of Revenue. He mentioned that the estimate of student loans on the book is about $10 billion. It would be interesting to know whether there is any qualitative or even quantitative research on the opportunity costs to society of not introducing interest-free student loans or student loans, at all. I suspect that the value to our society, our communities, and our economy is a lot higher than $10 billion. I am not suggesting that the Minister said it was not, but it would be interesting to know whether there is any study around that value.

I will talk about a couple of the clauses in the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill. Clauses 10(2) to 10(5), 13, and 25(2) cover interest-free student loans for residents from realm countries. This bill introduces an exemption for borrowers in realm countries from the requirement that they be present in New Zealand in order to qualify for an interest-free loan. The Minister talked about this exemption a little earlier but I think we glossed over it a little. The reason I think this exemption is so great and aspirational is that potential students do not have to make a commitment to first of all come to New Zealand before they can qualify for a student loan. It is one of the reasons why I am a little disappointed that the Greens are not supporting this bill. I understand the Green Party’s opposition to student loans from a philosophical perspective, but within the legislative framework in which we currently work I think this bill moves us forward quite a long way, and it would be good if the Greens could view it from within that legislative framework and support this bill for those reasons.

This change reflects a special relationship that has been talked about that realm countries—I like the words “realm countries”; I thought they were quite outdated, but let us keep them in there—have with New Zealand, and aims to encourage borrowers who want to remain and make a contribution to those countries to do so. We have talked about the costs and benefits of globalisation, but I think nothing is more important than empowering communities, certainly within the realm countries mentioned here. If students can go back and contribute to their communities in a way that their education allows, it can only be good for their communities and their countries, let alone their own professional development.

The key feature of this amendment relates to section 38AE of the Student Loan Scheme Act 1992. As mentioned, it is being amended to allow further exemption to the requirement that borrowers reside in New Zealand. It means that borrowers will qualify for the interest-free loan if they are present in a realm country—Niue, the Cook Islands, Tokelau, or the Ross Dependency—for 183 days or more. There is a little bit of a catch—well, not a catch. The purpose of the amendment is to encourage those who want to live in and make a contribution to these countries to do so, which is very important. Their student loans will be interest-free, as if they are still living and working in New Zealand. My colleague Kelvin Davis said he was of an era where he did not have a student loan, so it is hard to imagine. I caught the very end of student loans with interest, and when I bought my first house the interest rate on my mortgage was lower than the interest rate on my student loan, so I just tacked it on to the end of the mortgage. Thank goodness those days are over.

I will talk about something else as well. The bill introduces an extension of the interest-free loan entitlement to students engaged in full-time study overseas under a formal exchange programme approved by the New Zealand Government, or a formal agreement between a New Zealand education provider and an overseas tertiary education provider. It corrects an oversight in earlier legislation that disadvantaged certain borrowers studying overseas. Again, this amendment brings us back to where we see ourselves in the world, the whole area of globalisation, and importing talents and skills back to this country. In the past—and there are members of this Committee who have done this—students went overseas to study and felt that their real place in society was overseas, marketing their skills in different areas. This amendment allows them to come back and contribute to society in a meaningful way.

Let us look at a bit of background on this amendment. Provisions in effect from 1 April 2000 to 31 March 2007 entitled borrowers who were resident in New Zealand for income tax purposes to a full interest write-off if they were engaged in full-time, full-year study. Part-time or part-year students could also qualify if their income was below a certain level. The student’s New Zealand tertiary education provider was required to confirm the level of study. As this had the same effect as allowing a loan to be interest-free, when the extension of the exemption to undergraduate study was made, it was considered that these provisions were redundant and they were repealed. There is therefore a gap in interest-free loans for some students who are or were studying overseas.

I will take just a brief call to respond to some of the questions that have been raised since my last intervention on the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill. Mr Hipkins raised some questions about the repayment threshold, and the decision that was made late last year not to increase it for this year. There are a couple of things I would say in respect of that. Firstly, members will see that the bill introduces a much more transparent set of provisions for setting the interest rate that is to be payable where required, and that was because I felt that the previous system allowed for a bit of manipulation. This is a clearer and more transparent way of doing it. However, with regard to the determination of the income threshold, although the member might be able to make the same argument in practice, the reality is that some other factors also have to be taken into account. My recollection is that when the calculation was done last year as to what an increase might be, given other movements that had taken place it was very minimal. Although there was a cost of around $9.6 million, or something of that order, which I think the member quoted from my statement, the actual benefit per person was, from memory, something in the order of a few cents per week. On that point, given the economic circumstances and the practicality, we decided not to proceed. We will have to go through the same calculation at the end of this year, and obviously take this year’s circumstances into account, in setting that.

Mr Robertson raised a question regarding the hardship provisions, and also a general question with regard to keeping people informed of changes. I want to be absolutely clear about the hardship provisions. They take us back to where we were, prior to an unintended amendment a couple of years ago. The 15 percent rate issue, which the member also spoke about, will be applied only in circumstances where the borrowers are in New Zealand and are receiving wages and salaries. It will be taken on a case by case basis. This decision is not arbitrary; it is designed to deal with that situation when we are fairly certain that people are here but not paying what they should pay, and there will be the capacity for the commissioner to draw attention to that.

All of that leads me neatly to the next question that Mr Robertson raised, when he said that that was all very well, it was a good idea, and he supported it, etc., but then asked how people would be kept informed about it. I think that is a critical question. Over the last couple of years we have been tending to make much more use of interactive technologies to draw borrowers’ attention to their responsibilities. I remind the member that when we did the work in 2007 to try to get a handle on how many overseas borrowers there were, we used popular websites like the New Zealand Herald website—we put sidebar advertisements on it—and, from memory, the Stuff website, because they are sites accessed by people overseas. A lot of that will continue. The usual work in drawing borrowers’ attention to the new provisions at the time they become liable will also continue.

Again, I will just conclude with the comment I made in my first intervention. Once we change the whole system and the way in which it operates to become much more interactive over the next year or so, then a lot of these things will become much easier to resolve.

I want to make a couple of comments and first of all thank the Minister of Revenue for his comments about spouses of diplomats, because that was something that has been discussed. I cannot remember whether we discussed it at the select committee itself or whether just the Labour members have been discussing it amongst ourselves. Certainly the Minister referred to keeping the issue under some sort of review. Amongst the agencies that have some interest here, the Inland Revenue Department, the Ministry of Education, and the Ministry of Foreign Affairs and Trade, it would be possible for that to slip through the cracks and I would urge the Minister that it not slip through the cracks. In fact, although it is possible under this legislation as it currently stands for a partner or spouse of a diplomat to qualify by virtue of being part of an approved tertiary institution course that is recognised for the purposes of this legislation, and in that way he or she could get in, it would be useful to clarify that tax status so that we know for sure whether such spouses and partners would be eligible. I think that is also of benefit when one thinks that these are people who work in the service of New Zealand, go offshore for a time, and inevitably come back, and if a partner or spouse can come back better skilled to contribute in his or her own right as well, then we should facilitate that. I thank the Minister for that consideration, and hope that it does not fall from view.

The other thing I want to talk about is something I had referred to earlier when I spoke about tertiary institutions turning away students at the moment, and I used the example of the Universal College of Learning. In fact it would appear that if the student demand continues as it is tracking at the moment at that college, where there have been 500 more students than last year apply for courses, which is something in the order of a 19 percent increase on its past roll, if that continues, then the chief executive officer of the college says they will have to close the doors some time between May and August. That is an issue that needs to be addressed by the Minister for Tertiary Education—admittedly—but again it underscores the point that this legislation is trying to make the student loan scheme accessible to more people at a time when the Government is not entertaining increasing student numbers, lifting caps, renegotiating them, or any other way of investing in the tertiary education system.

There is one particular exception, and it goes to the speech that my colleague Kelvin Davis made earlier. I refer to—and the Chair will be pleased I am not going to seek to table it—an article that was in the Christchurch Press over the weekend on Saturday, 20 February about the launch by Pita Sharples of a new guide for universities to support Māori students to succeed. Every indication we have had from the Prime Minister and the Minister for Tertiary Education to date has been that there will be closer examination of success and whether people will be able to continue to apply for and be eligible for student loans. Kelvin Davies and my colleague Carmel Sepuloni have expressed a concern from their own experience, and that of their own whānau and whanaunga, for Māori and Pasifika students who come perhaps not from a background, in the majority of cases, that is accustomed to tertiary education. There is not an embedded understanding within the family of what it takes to support somebody to succeed, and therefore additional support from an institution is required.

I move, That the question be now put.