Student Loan Scheme Bill

I wish to advise members that debate is on clauses 181 to 218, and also includes debate on schedules 5 to 9.

Part 5 begins with clause 181, as you have so accurately stated for the Committee, Mr Chair. It is a clause rewritten by the select committee, but essentially it introduces the new $40 administration fee.

Earlier in the debate some members across the Chamber asked what difference $40 makes. It does make a difference, because it is a new fee being included in the student loan scheme. It means it has to be paid back. This is a new fee. It is something the Government is introducing, and there needs to be a reason for introducing it. What we seem to see when we look at the regulatory impact statement, and when we look at the bill and the justification for it, is that there is not a justification for a new administration fee for the scheme.

We are told that the good changes that we have all approved in Part 1 to provide for electronic arrangements for communication, more transparency about loan balances, and a better ability to communicate loan balances will save money. More loan repayments will be made as a result of the changes in this bill, and that is a good thing. We have also learnt that a new computer system is on the way, and that it will enable better, easier, and faster processing of matters related to student loans.

If we put those two things together, why does a new administration fee need to be introduced? I do not think the reasoning stacks up, which is why it is easy for us on this side of the Chamber to become suspicious that this is effectively the beginning of interest by stealth on student loans. We know that National does not believe that student loans should be interest-free. Those of us who campaigned at the 2005 election will all remember the attitude of the National Party at that time to interest-free student loans.

In this House, John Key, who was not then the leader of the National Party, but I think possibly the finance spokesperson at the time, said that he would oppose interest-free student loans with every bone in his body. The bones have shattered, have they not? The bones were weak. Calcium deficiency in those bones—

💬 Hon Trevor Mallard: Nothing wrong with having shattered bones.

That is true, I say to Mr Mallard. It is how one recovers from it, I say to Mr Mallard; that is what it is. Unfortunately in the case of National members they have simply decided, for political reasons, to stick with the interest-free student loan scheme.

Since National came into office in 2008, we have seen that its members bridle against that. Steven Joyce and John Key have both bridled against it, saying that the policy of interest-free student loans does not make any sense. Steven Joyce has had officials desperately looking for ways they can—to quote him—“dampen demand for tertiary education”. What a ridiculous notion that is. It is being done through changes around the fringes of the student loan scheme.

As has been mentioned earlier in this debate, for instance, the most recent of those changes is not allowing people over 55 years of age to borrow the living component of the student loan. I have had two people in my electorate office in recent times with concerns about the fact that they will not be able to retrain, having gone out of the workforce in their 50s, because they will not have access to that support.

Those are the changes that have been made by this National Government around the student loan scheme, but it cannot get to the interest-free part, which is the bit it really wants to get to. So in clause 181 we have the replacement for that—the $40 fee.

There is one good thing. It should be noted that under clause 181(2), if one is already paying the establishment fee—that is, in the first year one sets up one’s loan—one will not have to pay the $40 fee. Well, that is great. In the first year one gets away with just $60, but from the second year, wherever one is, it is effectively $100. It is effectively $100, when one adds the $60 and the $40. So borrowers are now being charged $100 for the management of their loan accounts.

This is a new fee. I do not believe the Government has justified it sufficiently. I think that the evidence that came before the Finance and Expenditure Committee in fact shows that it is not necessary to introduce this new $40 fee under clause 181.

I believe that it is a revenue grab. It does not make sense alongside the increased repayments that are expected to come in from this bill, and it does not make sense alongside the savings that are meant to come in terms of efficiencies in other parts of the bill.

I will follow on from Grant Robertson and suggest why this extra money is being levied on students. As I was reading through the Student Loan Scheme Bill I realised that the implementation obviously depends on a very effective computer system—a computer system that is able to do all the things that we have been mentioning in the Chamber up until now. Well, there have been some problems with the computer system, and I would like the Minister in the chair, the Minister of Revenue, to comment on this.

From my understanding, $35 million was allocated by Cabinet to upgrade the computer system. We have spent, as I understand it, $21 million out of that $35 million on an Oracle-based system, and that system now seems to not be working, or not be adequate. I quote from an industry magazine, Computerworld: the “deputy commissioner of business transformation, says it became apparent during the design phase that extracting the loan history and migrating data from the old system to the new system was more complex and time-consuming than expected. … we have spent $21 million out of $35 million allocated by Cabinet,”.

Basically, we have gone to the “Rolls-Royce”, gold-plated computer system, and it simply has not worked. I put a written question to Peter Dunne asking whether that was, in fact, the case. Mr Dunne replied that the department has gone back to the future inland revenue systems and technology (FIRST computer system), which is the old system of computing. He said: “Inland Revenue is delivering changes to Student Loans through FIRST rather than an Oracle-based system.” We spent $21 million on the Oracle system. That now seems not to have been money well spent; it has not delivered the outcomes that we wanted. We have gone back to the old FIRST computer system. I quote again from the Computerworld magazine: “Although this approach”—the Oracle-based system—“has been abandoned, ‘the long-term plan is still to move eventually away from FIRST, which is now more than 20 years old … Work done on FIRST in recent years, along with planned modifications, means we are confident it will perform …’ ” but will be eventually replaced.

We have now spent on Oracle $21 million out of $35 million that has been allocated by Cabinet to upgrade the computer system so it can do all the things we have been talking about in this bill. We have spent that $21 million. We have now found that the Oracle system will not work, so we have gone back to an older system, the FIRST computer system. But we know that the FIRST computer system will be inadequate into the future, and we will have to upgrade it. My question really is about what is going on here. It seems to me that $21 million of taxpayers’ money has been squandered on a new computer system yet again. We have had all sorts of problems with computer systems, and $21 million—as I think you will appreciate, Mr Chair—is a lot of money to waste, or, certainly, to have not fulfilled the computing needs of the student loan system in relation to moving it into the 21st century.

I would like the Minister to take a call on this and explain what exactly has happened to the $21 million, what has happened to the Oracle system, why we are back again on the FIRST computer system, which we consider an old system, and what the plan is for the future so that we can have some confidence that all the changes that we are supporting in this bill might, in fact, be allowed to go ahead.

I propose to take just a shortish call on the Student Loan Scheme Bill and follow on from some of the comments and questions raised by my colleague Grant Robertson in respect of clause 181 and the issue of the new administration fee—the annual administration fee—of $40, which, as we have noted, comes on top of the $60 establishment fee. So obviously there is a $100 cost to students or former students for their loans in an environment where the Government was absolutely determined, it seemed, to not be seen to be putting interest charges on student loans.

The question I wanted to ask the Minister in the chair, the Minister of Revenue, is this. Clause 181(1) says that “If a borrower has a loan balance of $20 or more on the close of 31 March in a tax year,—(a) an annual administration fee of $40 (or any other amount prescribed by regulations) must be charged by the Commissioner …”. I am seeking from the Minister some assurance. It has been known for fees like this to come in at that kind of level and then increase. Obviously we have the situation, as mentioned, where students have, effectively, a $100 cost for their student loans as a result of the establishment fee and, now, the annual administration fee. And, of course, we are well aware of changes in the Budget for students over 55 years that preclude them from student loans. So a cumulative cost is what I am concerned about, and I would like the Minister’s assurance that that fee—as opposed as we are to it at $40—will not be increased by executive fiat.

There are two streams of argument that I will respond to. The first relates to the $40 fee. I need to correct Mr Burns immediately. We are not talking about a cumulative fee of $100. There is a one-off $60 charge for the establishment of a loan, and an annual charge thereafter of $40 for the ongoing administration of the loan. The borrower will pay $60 in year 1—that is $60—and $40 in subsequent years. A borrower cannot get a cumulative cost of $100 in 1 year, which is what the member claimed, and there is no way one can twist the argument to present that.

Let me come to the point that Mr Burns raised about the wording of clause 181(1)(a) of the Student Loan Scheme Bill. Does this mean that there is some hidden agenda to increase that charge? The short answer to that is no. We have simply set that figure in there as a reasonable administration cost, bearing a relationship to the establishment cost of $60. If we were intending to have a higher figure, we would have said so, frankly.

Let me now come to the question that Mr Shearer raised, because I think it is important to put on record exactly what is happening with the computer system. This will be somewhat of an ongoing theme, not just in this bill but also in other tax legislation, over the next little while. The future inland revenue systems and technology (FIRST computer system) was instituted in 1991. It was seen as ground-breaking at that time. It has served us remarkably well in the last 20 years. But in that 20 years we have grafted on to it, in no particular order, student loans, KiwiSaver, child support, Working for Families, and one or two other initiatives as well. The consequence has been that a system that was set up for a very discrete purpose is now taking on a whole range of other activities, and that to get access to someone’s data in respect of any one of those activities requires a translation through all of them. So it is complicated.

During the term of the previous Government we began a project to refine the nature of our technology, if you like. We rejected then—correctly, in my view—the idea of a complete systems rebuild. The Canadians and the Australians are doing that. The experiences the member lamented in respect of national computer programs are being repeated in both those countries: they both have $1 billion - plus price tags now for the work that they are doing. So we decided that we would start with the student loan project because, firstly, it was discrete and, secondly, there was an off-the-shelf product available from Oracle that could be purchased and effectively implemented whilst the broader process of what the future might hold for the FIRST computer system was conducted. The thinking at that point was that we would do the student loan project. We would then move on to other discrete projects within the system and, over a period of time, migrate away from the FIRST computer system to the new system.

Because of the complexity of the FIRST computer system, which I described right at the beginning, what has happened in the subsequent period is that it has become clear that that initial objective was not able to be achieved as simply as we might have first imagined. I can assure the Committee that no money has been wasted. In fact, the transformation with regard to student loans will occur from 2013 onwards. The problem is simply this: when this bill came to the House with an implementation date of 1 April 2012, it was on the assumption that we would be able to move from the FIRST computer system by that time. I was faced with a decision earlier this year, around March or April from memory, as to whether we pushed the implementation of this entire bill out to 2013, which would be contrary to the assurances we had given, or to see whether we could proceed to a certain extent within the FIRST computer system and then let a certain set of other changes in the bill take effect at a later date under the newer system. That is the option we have followed in the bill.

We will be utilising the FIRST computer system for a number of the changes as we migrate over in the next 2 to 3 years, then the new system will take effect. But we wanted to honour the commitment contained in the bill and in the discussion documents that preceded it about the need to give some clarity for the administration of student loans in the interim. This is not a project to be concerned about in the sense of whether it will all happen—it will—but the time frame is simply taking a little longer than we might first have imagined. That is a good thing in a way, because a lot of the issues that are being indentified through that will serve us well when we come to look at things like PAYE, GST, and various other aspects of the system, as well. I can assure the Committee that within the scope of the FIRST computer system we will be able to deliver what is in this bill by 2012, and the bulk of it will come as the system changes from 2013 and beyond.

I do not want this debate to end prematurely. The question I have was stimulated by the Minister in the chair, the Minister of Revenue. Some of the memories—

💬 Hon Rick Barker: Stimulated by the Minister?

No, it brings back memories, some of which are pleasant and some of which are unpleasant. They relate to the period in 2000 when there was a look at the possibility of integrating the Work and Income computer system and the Inland Revenue Department computer systems in order to make sure that people were getting entitlements, but also to make sure that they were not ending up with the sorts of bills that people were ending up with. I know that Working for Families has made some progress in that regard, and there are better ways for people to avoid those bills.

I do not think the Minister was Minister of Revenue at the time—I do not think he was in Government at the time—but there was quite a lot of discussion then about the benefits of having a system that worked together across student loans, Working for Families, the Liable-parent Contribution Scheme, PAYE, and things in that area—but not so much GST. There was discussion about getting a system that was integrated and worked well together. I think it fell down, probably, on the State Sector Act, and, in fact, on Christine Rankin standing on her rights as the chief executive of the Department of Work and Income to have a separate system. I think it is fairly well on the record that a major breakdown occurred in the relationship around that discussion, but it was too late, because Work and Income was required to get a new system, and the systems diverged.

I just ask the Minister—the Minister is doing good work in this area, and we are debating the charge, not the general process—whether he is looking at going further and having a system that is effectively a Government income-relationship computer system, given the good work that he is doing with education, and whether it can be spread to the area of a more major challenge.

💬 Hon Peter Dunne: In short, yes.

Good.