Student Loan Scheme (First Home Repayment Diversion) Amendment Bill

Kia ora. Ngā mihi nui ki a koutou. Kia ora. I move, That the Student Loan Scheme (First Home Repayment Diversion) Amendment Bill be now read a first time. I nominate the Education and Science Committee to consider the bill. A home of your own used to be the Kiwi Dream. For many, particularly Generation Rent, it is just that—a dream. This bill asks the House a question: should the State, as soon as people start working, demand that they pay back their student loan as fast as humanly possible, with compulsory weekly deductions locking them into rental accommodation, or should it give those people the choice to maybe prioritise saving for a first home while working and saving in New Zealand?

We are facing a housing crisis in New Zealand. We are seeing prices rising at unsustainable levels. We heard some of the cases when the member Kelvin Davis’ bill was being debated previously. People are living in garages and speculators are getting rich flipping off houses. We heard from James Shaw that a house rose 80,000 bucks in value in the space of an afternoon. Deposit requirements have risen to over 20 percent, and getting a deposit together, particularly for young Kiwis, is harder than ever before. Once upon a time we had a homeownership culture in New Zealand. Now, with homeownership at the lowest rate in 66 years—and in Auckland twice as many people having multiple properties as there are first-home buyers—we have moved from that homeownership culture to a landlord and tenant culture.

There are countless couples who have studied at university or polytech, and they are just trying to get ahead and do what is right for their country and their economy. These countless couples are sitting around their kitchen tables, going over their numbers, and they are wondering how on earth they are ever going to get together a 20 percent deposit in this housing market.

It is incredibly hard to save for a deposit when 12 percent of your income is taken out in compulsory student loan repayments every week. Currently, anyone earning over the ridiculously—and, compared with other countries, incredibly—low income threshold of $19,000 has that 12 percent disappear every week. Then there are still taxes, saving for retirement, and the rising cost of living to pay for. I know how frustrating and insecure it is when you know that you are paying someone else’s mortgage but cannot get into a home of your own.

I want to point out that this bill is not a silver bullet to fix the student loan or housing crises, but it is a practical measure that we can enact now to help people get into their homes. My bill would allow people with student loans—and there are more than 700,000 New Zealanders in this basket—the choice to divert part or all of those 12 percent compulsory deductions into a nominated first home savings account for a period. This would make a huge difference to young people who are struggling to get together a deposit. I will give you just one example. A Bachelor’s degree graduate on the median wage in New Zealand could save $18,000 after 5 years. Add that to KiwiSaver, the HomeStart grants, and some private savings, and a deposit is actually looking realistic. At the moment that horizon is receding far off into the distance.

Practically, under this proposal, the first home savings account would be administered and held by the IRD using the existing student loan repayment scheme. The IRD would approve the money to be spent on the purchase or building of a first home. If the funds were not spent on a first home, they would be transferred back into the student loan account. I have delegated the limits to the Government to decide what they should be—a savings cap or a nominated period of time; for example, maybe 5 years. I have given those considerable powers to the Government in the spirit of compromise, so that the Government of the day can set those barriers.

I want to urge members to just stop and reflect for a second, because currently borrowers who travel overseas can access a student loan repayment holiday. Those who stay in New Zealand—who want to work, who want to save, who maybe want to start a family—they cannot access that. I think it is entirely fair and reasonable that we should give those who want to stay and work and save in New Zealand the opportunity to have a repayment break as well. Currently there are 341,500 New Zealanders making those compulsory 12 percent weekly loan repayments, and I believe we can help those thousands of young Kiwis into homes. That is going to encourage them to stay in New Zealand, which is actually, in the long term, going to help with the current student loan repayment.

The bill, basically, says, in a nutshell, that secure housing is important. We need to give people a pathway into their own home, and, look, if it takes a little bit longer to pay off their student loan, I think that is reasonable. Trying to make life easier should not, however, be seen as support for the student loan scheme. Student loans, and the outstanding $15 billion in debt, are themselves deeply unfair, and need to be drastically reformed. I believe that students should not be borrowing to live, and we should be returning to fee-free education. There needs to be much, much more done to fix the housing crisis—starting with building homes, a capital gains tax not on the family house, and rental law reform—but in the short term, under the current National Government, I am proposing this bill as a practical solution to help hundreds of thousands of Kiwis right now.

I began this speech saying that I was asking a question: should we demand that loans are paid as fast as possible, or should we allow people to save their own income for their own home? The bill also asks this House a broader question: is this House committed to intergenerational equity? For my parents’ generation, there was guaranteed superannuation at 65, support to get into a house, free education, and universal student allowances, but for my generation, superannuation at 65, an affordable education, and, most of all, a home to call your own are considered luxuries. I have got a bit of a personal example. Probably in contrast to the vast majority of members in this House, I had to borrow to study, I paid interest on my student loan while I was studying, I received no State support to help buy a home, and I am going to have to retire later than many members.

I believe in intergenerational fairness, and I hope this bill, and the consideration by this House and a select committee, can take us a little bit closer to intergenerational fairness. This House can help hundreds of thousands of people who are sitting around those tables, looking over their receipts, looking over their incomes, and seeing their 12 percent taken out compulsorily every single week. They want a little bit of hope. They want to have a bit of that Kiwi Dream, which is a home to call their own, to raise their family in. I hope that this House can help.

This bill intends to assist New Zealanders with student loans in purchasing their first homes. I respect the intention of the member Gareth Hughes. As a former university lecturer, I have always believed that we should support our graduates—and, whenever we can, we do that. But this bill has some fundamental problems. The No. 1 problem, of course, is that it is simply too expensive. It is estimated that this legislation would have an operating cost of about $80 million or $200 million—that is the operating cost—and then you could have a one-off impairment cost of about $1.2 billion.

This is on top of the huge investment the Government has put into supporting our university students. This Government, in the past financial year—the 2015-16 financial year—has spent over $1.14 billion on financial support for our university students. We should remember that the Government covers 82 percent of the full cost of the tertiary education provision for our students—82 percent of the full cost. That is a lot of money.

The dilemma here is that, on the one hand, we believe it is necessary to have wide access to our tertiary education system, because we can see the benefit. We understand that with a higher level of education, New Zealanders will have better outcomes, and it will also have a major social and economic benefit for society. For that reason, we believe our student loan scheme is doing well. It is particularly important in encouraging students to come to universities, in enhancing higher-level education participation.

But, on the other hand, we have a major challenge, and that challenge is sustainability—whether we are able to retain this kind of scheme, whether we are able to afford it. That is a major challenge. We should remember that this Government is committed to retaining the interest-free student loan scheme, and also that it is very expensive. At the same time, we should also remember that the Government is currently writing off about 40 percent of each dollar lent through that scheme—about 40 percent of each dollar, we are writing off. That is a huge cost to this Government. On the one hand, as I said, we would like to support our students; on the other hand, we need to consider the sustainability issue. This is a dilemma.

Currently, we believe, our student loan scheme is working well. We are able to retain a balance between affordability and helping our students, so there is no need to make any significant changes at this stage.

There is another issue: the interests of future generations. If we are overspending today, our future generations will have to take responsibility to pay it back, so it is important for us to make sure that we are using money responsibly—and this is a responsibility not only to our current generation but also to our future generations. For that reason, this Government has been trying to manage its finances very, very responsibly.

That is the first problem with this bill—that it is too expensive. The second problem with this bill is that it is not necessary. There is no statistical evidence to support the claim that student loans are, basically, somehow deterring people from having their first home or starting their family. There is a linkage between the size of a student loan and the size of a mortgage, and that is that if you have a large-sized student loan, you may need to consider the size of your mortgage. But there is no clear evidence to support the claim that the presence and size of a loan would perhaps deter people from having a home. There is no clear evidence to support that. Similarly, there are also people who argue that student loans are somehow deterring people from having families or having children earlier, or that they may have an impact on the number of children. This, again, is not really scientifically supported.

I will digress a little bit here. In China we had a one-child policy for generations, and then we had the problem of an ageing society and also the issue of gender imbalance. So the Chinese Government abolished the policy, and people in China can now have two children. But in the major cities in China, people are not having two children; they prefer having one child. This is not because they have student loans, but because of other social or economic factors, such as the pressure of work. So we do have to consider many other factors when it comes to some phenomena.

Back to this bill—I would say that education is a kind of investment. You borrow now, in the hope of getting more return in the future. There is evidence to support this claim. The higher the level of education you have, the better income you will have in the future. People with a Bachelor’s degree will earn 40 percent more, on average, than national median earners, after 5 years in the workforce.

According to Universities New Zealand, research shows that a typical university graduate will earn around $1.6 million more over their working life than a non-graduate. This is much higher for medical doctors, at $4 million; professional engineers, at $3 million; and information technology graduates, at $2 million—and it is still high for arts graduates, with an average earnings premium of around $1 million to $1.3 million. So education is a kind of investment: you borrow today for a higher education, and, in the future, you have a better income. This means that people with a higher education tend to be able to afford their living, their homes.

Also, a question here is whether borrowers are left with large debts for many years. This bill is related to those who are staying in New Zealand. Borrowers who remain in New Zealand—for example, of those people who graduated in 2014 but stayed in New Zealand, half of them will settle their loans in 6½ years, while three-quarters of them will have repaid their loans in just over 11 years. This is a kind of forecast for our students, for graduates.

Also, I would emphasise that this Government has made a consistent effort to enforce payment. Basically, this Government has made it clear to all student loan borrowers that it is their responsibility to repay. An information-sharing agreement between Australia and New Zealand last year has helped us to locate 50,000 student loan borrowers in Australia with a combined loan balance of $1.2 billion. That is what we have been trying to do. Also, since 1992, when this scheme began, more than 500,000 borrowers have now repaid in full. We need to respect those people and we need to make sure that our policy is fair to those people. Thank you.

Debate interrupted.

The House adjourned at 10 p.m.