Taxation (Budget Measures) Bill

Members, we come to the debate on Part 5. Part 5 is the debate on clauses 40 to 44: other amendments to the Tax Administration Act 1994 and the Student Loan Scheme Act 2011. The question is that Part 5 stand part.

Thank you very much, Madam Chair. I thought it’d be useful to provide a little bit of context in regards to the changes that are being proposed in this section of the bill because they are specific in nature, and it just will be helpful in order for us to get to any questions, if there are any.

The research and development tax incentive—or the RDTI—allows businesses undertaking eligible R & D activities to claim a 15 percent tax credit on eligible R & D expenditure. To participate in this process, a business must enrol and submit an application for approval, and then file a return subsequently. Under the current status quo, if a business makes a mistake that invalidates that approval, then they will not be eligible for the R & D tax credit, and one of the specific mistakes that they could make is when they have the wrong entity that is listed on the application process. Under the current legislation, there’s no ability for the commissioner to take into account a simple error and mistake and remedy that. They simply are ineligible to be able to claim that credit, which obviously doesn’t sound fair and reasonable—and nor is it, in our assessment—and hence why we’re proposing to make a change to ensure that if such a small number of taxpayers do make such mistakes, then there is discretion by the commissioner to make changes.

Thank you, Madam Chair. Just for a little bit of context, this part of the bill is something that’s actually relevant to my portfolios. I’m the tertiary education spokesperson for the Green Party, something that aligns well with my student politics background.

My question is around the changes to the student loan scheme that’s being proposed. Are there any kind of planned further changes that this Government is considering, and, if not, will he rule out scrapping interest-free student loans for New Zealand - based borrowers? That’s something that’s really concerning to us here. The interest-free student loans are a really good way to make sure that people are able to study.

The second part of my question is that, obviously, a lot of the tertiary institutions in the country are in tough times at the moment, partly induced by the COVID economic crisis and partly induced by the border shutdowns and the lack of international students. So my question around this is: has there been any analysis or modelling done on how kind of disincentivising study might affect the further viability of our tertiary institutions, like the world-class one in Dunedin called the University of Otago? Thank you.

Thank you, Madam Chair. I’ve got a very short—probably—question. Over here, we have been looking at clause 44 and we’re actually quite perplexed because it seems to do two quite inconsistent things. I understand how the base rate works generally, and that you take an average of the five-year bond rate and then you add a percentage to it. I’ve got the definition of “base interest rate” from the Student Loan Scheme Act in front of me, and it notes that you add 0.74 of a percent to the rate to get the actual base rate. But clause 44(2) says, firstly, to replace “0.74” with “1.74”, and that makes sense as you get a bit more money for the Government there. But then, in the very next subclause, it says to replace “1.74” with “0.74”, and “1.74” doesn’t appear in the definition section.

So, unless the Minister is doing a little circle and replacing it and then un-replacing it, it actually seems to be a bit of an Alice-in-Wonderland nonsense provision. It may be that it’s just a drafting error because the Minister’s been under a bit of pressure and this is a bit rushed and hasn’t been given the scrutiny that perhaps it should be having in a select committee, but it’s actually a really simple question. Is it a drafting error, or, if it’s not a drafting error, can the Minister explain where the “1.74” is in the definition in section 4(1) that he’s replacing with “0.74”, because, for the life of me, I can’t see it.

Thank you, Madam Chair. I just have some questions for the Minister of Revenue around the research and development (R & D) tax incentive in clauses 41, 42, and 43 in this part of the bill. Thank you for the explanation that the Minister gave us. One of the things that I can’t find in any of the documentation that’s been supplied to the House is the size of the problem we’re looking to solve here. Obviously, there would be instances where a subsidiary company was carrying out the research activities, but the tax return was filed in the name of a parent company. I’d be interested to know the number of companies where this has been in place.

I notice there is a retrospective element to these clauses, as well, which is unusual. It is unusual for tax legislation to contain retrospective clauses. My understanding from the legislation—and I’d like the Minister to confirm and perhaps explain the rationale why—is that these actually can be corrected back to the 2021-22 tax year, which is unusual. Would the Minister please give us an indication of the size of what they’re expecting to be the corrected tax returns from those tax years that have already occurred to be, and also whether or not the Minister took any further advice around the research and development tax incentive (RDTI) in terms of subsidiary companies and parent companies in respect of eligibility and in terms of whether or not it was a multinational company that had established an R & D subsidiary here in New Zealand that was carrying out the activities—whether that has thrown up any issues. I’m interested. I was one of the Ministers that helped put together the RDTI and these were all questions we had, so I would be interested to know.

The other thing that I am interested to know is whether, in any way, any of the policy advice on the provisions here is also connected to another measure that is contained in the summary of initiatives for the Budget, albeit as a footnote—that is, the scrapping of the in-year payments loan that was introduced in March 2023. That in-year payments loan on the RTDI was introduced by way of enabling small businesses and supporting smaller businesses so that they wouldn’t have to wait for the end of the tax filing year to receive the revenue that they could recycle back into their business. It was a workaround in terms of how we could get cash back into those businesses before that time. It says that the temporary in-year payment loan was introduced to improve cash-flow performing businesses by providing a loan while businesses waited. The footnote goes on to say that it’s a temporary mechanism with a permanent solution providing in-year payments.

So, in preparing this amendment, I wondered whether the Minister had got further advice around what that more permanent solution would look like, and what a time line for ensuring that we are supporting our smaller businesses to be able to conduct research and development activities would look like. I think that that is something that around this House—all sides of it—all parties would agree is important: that we are supporting others than just our largest businesses to be able to conduct that most important work of innovation in the form of research and development.

It says that there are administrative complexities and there’s low take-up of the scheme. I wonder if the Minister could advise the committee what the take-up of that scheme was like and, if they have done further policy work, what any take-up of a more developed and more permanent scheme would look like. The Minister is quite correct in the footnote that occurs in the summary of initiatives that it was only ever intended to be temporary, so I look forward to hearing about what more permanent solutions may be put in play.

Thank you very much to the members for those questions. I’ll start with the research and development tax credit question. My officials advise me that it is less than 10 taxpayers who are potentially caught within that. The fiscal consequence of remediation for those taxpayers as a result of this change is probably less than $10 million in terms of fiscal implication. I don’t have any operational detail in terms of what the nature of those taxpayers are, but that’s the scale of size, and the reality is that the change that we’re making, I think, is sensible and pragmatic for the reality of making errors in that regard.

In regards to the broader policy questions around the research and development tax credit and the role which it plays are not confined and relevant, necessarily, to this aspect of the bill. But more broadly, obviously, it’s an area that we’re having an ongoing review on because it is an important aspect in terms of our broader economic growth agenda.

The question raised by the Hon Duncan Webb in regards to I think it was clause 44(2) and (3) in terms of the “base interest rate” definition aspects: simply, Duncan Webb, what we’re just reflecting there is that the change that we’re proposing is only for five years. So, in effect, it will come in and then it will come out, and when I’m saying that, I’m referring to the 1 percent increase. Hence why you’ve got two aspects of definition there that flow through. It allows the reality of the five-year implementation to revert back to what it was before we make that subsequent change.

Thank you, Madam Chair. I appreciate the opportunity to take my first call in relation to this part of this important bill. I am interested in the Minister’s last response to that question about the five-year period—and I know that some colleagues will have some further questions on that—because I can’t, for myself, see how replacing the exact same section with two different things works, and I don’t see in the changes that the Minister is implementing the five-year change. I appreciate that the Income Tax Act is a complex Act, and no doubt we’ll have some more questions on that, but I think it is really important that we figure out how that works.

I do want to speak about student loan interest, and I do have an amendment on the Table in respect of the clauses that we were just discussing—clause 44(2). But perhaps—I don’t know—depending on whether there is, in fact, some issue with that clause, maybe I may need to amend my amendment. But, essentially, the questions I have for the Minister are around the policy decision to decide to charge New Zealanders overseas with student loans additional interest.

I know that having interest-free student loans in New Zealand is not a cost-neutral thing. It does cost the Government money. It’s about the choices that the Government chooses to invest in, and so I was just wondering why the Government decided that this particular group of borrowers, who are already paying a much higher rate of interest on their student loan, should in fact have a higher interest rate. So my amendment to clause 44(2) is really to try and keep a change in scope. I could have said that I don’t think we should charge interest at all for overseas borrowers, which is a policy decision. I understand why there’s a distinction, because, obviously, we want to provide an incentive for people to come back to New Zealand, but the amendment that I’ve put forward is really to try and keep it in scope but to remove the Government’s proposed policy intent to add that additional 1 percent of interest.

The other issue that I wanted to cover—which isn’t 100 percent clear from the documentation surrounding this—is this. In fact, the increase in interest actually applies to New Zealand - based borrowers too, when they are late with their payments, and this is a bit concerning, I think. In a way, it’s possibly more concerning than the increase in interest rate compared with the overseas borrowers, and that’s because for people who are late on their student loan payments, the reason that they would be late, I can imagine, would be due to financial hardship, due to being in a difficult financial position, or due to the payments that they are required to make on their student loan once they earn above the threshold being too onerous.

It’s already, as I was able to research quickly, quite a high interest rate. I think, for 2024-25, it was 7.3 percent—quite a high interest rate in these terms. If you were to get that type of interest rate, I think you’d be quite happy with that return, but I’m just wondering why the Government and why the Minister would decide to do that for people who are obviously in a struggling financial position. They’ve taken the decision to get a student loan, they’ve done what the Government says—and we’ve heard from this Government that education is the great equaliser—they’ve participated in education, and they’ve got a loan. Presumably, that education is benefiting both them, their family, and their community. They are unable to make their student loan repayments for whatever reason. Maybe they’re self-employed, while, often, people who are in employment have regular deductions made by their employer and are more unlikely to be in a position of not having to make those student loan repayments. So, for whatever reason, they’re in financial difficulty. Why are we adding to their burden by increasing their interest rate on their student loan when, really, they’ve done exactly what both this Government and previous Governments have wanted them to do? They’ve bettered themselves through education.

There’s a cost of living situation that’s very tough for people at the moment, and it seems to me that with this change, we’re making matters worse. So I wondered about the advice the Minister took on that. I wondered if he could outline the policy intent for that. We know that there’s tough financial considerations, but for this particular group of people, they’ve bettered themselves, they’ve taken on education, and they’re obviously in a tough time, and we’re making things harder for them. So if the Minister could explain to me the rationale for that, that would be good. Also, if he could let me know, having considered those points that I’ve raised, whether he would consider supporting my amendment to clause 44(2).

Thank you, Madam Chair. Thank you for giving me the opportunity to take my first call on this part and also giving us the opportunity to speak on this part in lieu of select committee.

Now, my question to the Minister is on clause 44, and particularly in combination with the explanatory note on the change to the student loan - based interest rate calculation, because we do not have any form of regulatory impact statement on this. What I want to home in on is the phrasing of “to partially cover the loss in value of the scheme due to recent high inflation.” So the key point of my question to the Minister is around the modelling that has been done in relation to the amount of overseas and late student loans that would be collected as a part of this increase in the interest rate.

In terms of the research that I have had the opportunity to look at as our overseas New Zealander spokesperson, the fact is that over the last 10 years, we have seen student debt increase and the interest rate fluctuate from anything from 2.8 percent up to 6 percent. However, in terms of the sum of the student loan that has been collected, that has not increased. What we see instead, however, is that more overseas students are struggling to pay their loan because of the interest. They have such a high interest rate that they’re able to pay the interest but not the principal of that loan, to the point that in 2022—and this is something that we have to, unfortunately, find in a hurry because we’re under urgency—over 75 percent, roughly, of overseas borrowers are overdue in terms of the payment of their loan, to the total sum of debt of possibly more than $2 billion.

So, again, the question is: what modelling has been done to show that this is, indeed, going to be collected, rather than it being a way of just simply punishing overseas New Zealanders who may be based in and working in countries where they do not earn a high enough salary to be able to pay off their student loan based here, in Aotearoa? So that is a question to the Minister.

In addition, in terms of the Cabinet’s own announcement by the Minister for tertiary education, she has said that, taken together, these initiatives are a sensible approach to tertiary education funding that reward hard-working students. But what we see here is that Inland Revenue is also moving into having more options to actually penalise these students who are going to be coming home even for holidays or, potentially, if their family members are sick—penalising them and, potentially, even detaining them at the airport. So, again, as the overseas New Zealander spokesperson, my second question is: when this was done, was there any consultation done with our New Zealanders—with our own people overseas—when they decided to increase the interest rate?

So my two questions are: number one, what was the modelling that was done around this that suggests that we will be able to collect more money in order to balance that loss in value of the scheme; and number two is whether there has been any consultation that was done with overseas New Zealanders on the impact that this will have for them in terms of the increase in the interest rate, and whether that will affect their ability to come back home?

Thank you very much, Madam Chair. Unsurprisingly, with the Budget process, we don’t consult with the public before we release the Budget. So, in this case, we didn’t consult with student loan borrowers before making the announcements yesterday, but that’s no different to any Budget process in that regard. The key challenge that we are reflecting here is the change in value due to the implications of inflation. We’ve time-bound that. We haven’t made it a permanent difference, so we are going to look to reverse that back to the status quo within a five-year period, and that simply just reflects the uniqueness of both the inflationary environment and also the implications around the interest rate on that loan. That is a scenario that we haven’t seen play through historically, but it is our point of view that we do want to revert back to the status quo in that regard.

I think what is interesting in a broader context, which is slightly outside of here, but in terms of your having asked about student loan, nearly 90 percent of that outstanding student loan debt is owed by overseas borrowers. The significance of the outstanding debt owed by taxpayers which we inherited in October is significantly higher than where it was in 2017, and student loans are an area in which we’ve also seen significant growth. Hence why, in the Budget, we’ve allocated $116 million to increase enforcement and compliance to collect the money that is owed to the Government, because every dollar that we don’t collect is a dollar that potentially needs to be found from somewhere else. That is the work, and within that allocation of compliance funding, there is specific money ring-fenced for targeting the collection of money that is owed in regards to student loans.

Thank you, Madam Chair. This is my first call on this part, and the first opportunity to discuss Simon Watts’ big new OE tax. It is the tax that will apply to overseas young New Zealanders who have gone off for a year to work in London in the pub, people who have gone overseas to Australia to get some work experience, or it is someone who might be continuing on with their Master’s studies. They will be penalised by what the Minister has introduced in this part—Part 5 of the bill—which we are debating today, and I thank him. I thank that Minister for engaging so fulsomely with our questions today.

He has answered, very helpfully, my colleague Lawrence Xu-Nan and so he has blown that wide open for me to ask him plenty of questions about Part 5, and I will do so now. From 2025, overseas New Zealanders will be penalised and charged extra for their student loan debt because of this change, and those returning to New Zealand will face penalties at the border for just trying to come home. For visiting their mum, for coming home and seeing their friends and family, for attending a wedding—they will be stopped when they try to come into the country.

There is, in fact, extra money for it in the Budget for compliance enforcement costs, and why is that? I want to ask the Minister the first question I have here, which is: why is that debt, which he disclosed in his previous answers as being 90 percent of the outstanding student loan debt, with overseas borrowers? Is that because the enforcement powers that the IRD has are not adequate to actually recover the overseas debt owed by overseas borrowers? Is the Minister aware that according to the IRD’s annual report for June 2023, it received just 198 payments, totalling $16,421, from overseas borrowers? Is the Minister aware that the IRD cannot recover that debt from overseas borrowers, and is this a cynical measure to tell young Kiwis who have gone overseas that they are the rule-breakers, whilst the rest of us continue to pay and do not receive the tax relief that he says is going to occur from this saving?

I want to ask the Minister: has he considered the effect on New Zealand’s broader economy? When we make it harder, we make it harder with these provisions for young New Zealanders who have done the work, who have trained in our universities, who have upskilled, and who have gone overseas for further work experience to come back into New Zealand and invest in New Zealand, to make homes for themselves, to get jobs in our local economy, and to bring their skills home. Is this just one more barrier to those businesses that are crying out for skilled people to get young New Zealanders back into the country? Minister, I look forward to the answers to those five questions.

Thank you very much, Madam Chair, for allowing me to make a call in response to that question. Look, there’s two aspects here at play, and we’ll cover the first aspect relevant to this section of the bill, which is the increasing of the interest rate. The purpose of increasing the interest rate for a period of five years is to partially cover the loss in value of the scheme as a result of inflation. That’s what we’re doing, that’s why we’re doing it, and, as I said, it is a temporary adjustment to deal with the loss in value and that will achieve that outcome.

In regards to the second portion, on this side of the House, we make no apologies for the majority of New Zealanders who pay their taxes and do the right thing. What we have invested in in regards to increasing compliance and enforcement costs is to target those people that are not meeting their responsibilities. We do not make any apology for the fact that if you owe money and you’re not meeting your responsibilities, then the Inland Revenue will use their powers available to them to collect that money, because—guess what!—a dollar that they collect is a dollar that we don’t need to find from somewhere else. It’s a dollar owed to this Government, and it is not appropriate for the majority of Kiwis to pay their fair share and to have a very small element who don’t to be able to get away with that. That is not the way in which we see it, and that’s why we’re making the changes.

Thank you, Madam Chair. I’m flabbergasted at the fact that we’re talking about penalising our own people overseas who are trying to gain international experience—which I’m sure is something that the governing parties are interested in—and then bringing it back home. But we are now creating this barrier for them to come back home. Sometimes I do wonder about the Government’s priorities, but this is my question.

There are two parts to this particular section. There is the first part that we’re looking at, which is the increase of the rate by 1 percent for five years—which we have said, but five years makes a lot of difference; it’s the difference between whether you’re eligible to vote or not—for the interest on the student loan for overseas New Zealanders. However, it also means there is a second part, which is the increase on the late payment by 1 percent. So that’s 2 percent.

Now, the question to the Minister—and this is genuine. I would like to get some clarification from the Minister for those overseas New Zealanders, which I have mentioned. Currently, over 70 percent of overseas New Zealanders are unable to make their payment, which, again, would then become a late payment. In these kinds of cases, would these overseas New Zealanders get penalised by 1 additional percent as the base of their student loan payment on top of that an extra 1 percent as part of their late payment fee?

Is it going to be the case that those who are unable to pay—that’s more than 70 percent, and we heard that. The Minister has mentioned before that over 90 percent of the late payment that we’re seeing right now is from overseas New Zealanders. So, in these cases, when we have this incredible number of people who are unable to make their payment due to a variety of the reasons I have mentioned, because of the fact that maybe they are studying overseas or they are gaining their higher education overseas. I can say to you that in my own profession, while I was doing my Masters and my PhD, I was encouraged to go overseas for my PhD because if you want work in academia, apparently you need to have that overseas experience, and this is something that you see in academia in general.

For these people who will not be earning that much of an income and, in fact, who will sometimes be paying exorbitant fees overseas to international institutes in order to take up post-graduate education, or if they’re in a precarious employment situation or they might be overseas looking after a family member and so are unable to take work, are they being penalised for 1 percent of the base interest rate, and yet, when they are late on their payment, they are being penalised by an extra 1 percent for their late payment on top of that? So if the Minister could provide that clarification, that would be great.

Thank you very much, Madam Chair. Well, we’re nearly there, aren’t we—we’re nearly there, aren’t we? You can hear it on this side of the Chamber—hey, we are nearly there.

Look, in regards to the question that was asked about the payment of debt, IRD have a wide range of options available for those that are in hardship, who genuinely have the inability to pay due to their financial circumstances. We are not talking about those individuals; we are talking about those individuals who simply make the decision “I do not want to pay my student loan.”, and for those individuals, it is absolutely fair and reasonable that there should be enforcement and compliance to ensure that the Government gets back the money that it is owed. That’s what we’re talking about here.

The change in regards to the percentage is dealing with the value of the scheme, and that’s what will effect that change. But do not confuse or conflate the reality of these people that potentially are in genuine hardship cases. There are procedures and protocol around that. We are talking about a large number of people that genuinely are choosing to say, “I am not going to pay this back.” That is not appropriate, and that is not taking personal responsibility for the fact that they owe this Government money.

Thank you, Madam Chair. I do want to ask the Minister a number of questions, in relation to both clauses 41 and 42. But, actually, since we’re on student loans, I want to go back in response to some of the terminology that the Minister is using around the value of the loan.

I understand why the Minister wants to increase the base interest rate, for example. It’s an incentive, I’m guessing, for the Minister to have those offshore borrowers to pay back the loan faster. I’m guessing that’s the policy purpose of this. My question, though, as the Minister refers to it as the “value of the loan”—now, that’s quite a wide term, and for student loan purposes, you can have the fair value of the loan or you can have the impairment value of the loan, and I think the impairment value is what the Minister is referring to when he refers to the “value of the loan”.

An impairment value is, basically, how much student loan borrowers owe the Government, how much the Government thinks it is going to collect from them, and, basically, you deduct one from the other and that’s where we come to the impairment value of the loan. Or if the Minister is actually talking about the fair value of the loan, he’s talking about the total of the student loan asset book and how that sits on the Government’s accounts. Just for the sake of this particular question, it would be, I would suspect, a contingent liability or it is a contingent asset.

So my quick question to the Minister—and I’ll take another call after the Minister provides me a response to this—is: when he refers to the value of the loan, is he talking about the fair value of the student loan, which is, basically, the full amount that is on the student loan books themselves, which is on the Crown accounts—

💬 James Meager: It doesn’t matter—it’s not in the bill.

—or is he talking about the impairment value of the loan? This is in relation to the bill, as the member on the other side of the Chamber has asked, because the Minister referred to it in relation to the value of the—which is why he’s talking about it.

💬 James Meager: Unless there’s an amendment, it’s not in the bill.

Again, the members on the other side are saying, “What has this got to do with the bill?” Well, clause 44 looks at a base interest rate increase in relation to the student loan. So if the members on the other side want to take a call as to how they want to explain fair value versus impairment value, I’m happy for the other members in the Chamber to keep going, but the interjections are actually providing me with more questions for the Minister. So I thank the other members of the House for asking and interjecting.

Let’s go again. Clause 44(1) says, “This section amends the Student Loan Scheme Act 2011.” Subclause (2): “In section 4(1), definition of ‘base interest rate’, replace ‘0.74’ with ‘1.74’ ”. Now, if the member wants me to read it again, what I could do is actually look at the Student Loan Scheme Act and have a look at the base rate that’s in there. Or, if the member would like to continue with his interjections, we can continue with my call while I’m waiting for the Minister to have a look at this, because, again, the question around the fair value of the loan and the size of it on the Crown’s accounts is a valid question to be asking, which is why I’m asking the Minister: is this the impairment value of the loan or the fair value, when he speaks in relation to his responses to other members on this side of the Chamber about the value of the loan?

Thank you, Madam Chair. I just have a follow-up question for the Minister around the research and development tax incentive, and I thank the Minister for his very useful and informative answers that he gave to my earlier contribution, but my question is in response to clause 43(2). I asked the Minister about the rationale and the reasons why it is that there’s a retrospective element to this clause of the bill, and the Minister hasn’t answered on that, so I just would like it confirmed. Clause 43(2)—

💬 Hon Simeon Brown: Well, only if you ask good questions.

I am asking questions; if you’d like to take a call, Mr Brown, I suggest you do. In terms of the retrospective element of clause 43(2), the Minister has told us there are probably only around 10 companies that are in this situation of having the wrong filing name in their return. My question for the Minister is whether he took advice on whether there were administrative fixes to this, either by officials within Inland Revenue or whether there was ministerial discretion that could be used, because what I’m understanding is that this is a legislative fix that’s taking the time of the House for 10 or fewer companies. What advice was he given by officials and what options did he consider when making this policy decision?

I don’t disagree with what we’re trying to fix. There will be companies, and only literally a handful of them, that have filed under the wrong name and that should be eligible for this tax rebate, and we’re fully in support of that. But I’m just trying to understand why it was that the Minister opted to insert clause 43(2) into this legislation, rather than going for an administrative fix.

Thank you very much, Madam Chair. In response to that question in regard to the considerations: absolutely, we explored all options that were available that would avoid the need to have to undertake a legislative change. But official advice through to me was clear that the only way in which this could be effected was through legislative change, and we didn’t have the options around administrative change or any other discretion within the commissioner’s power. So we are where we are, and we did kick the tyres in regards to that to make sure that this was the only pathway, because there are plenty of other things that we can be doing. But that’s the reality of where we landed.

To the Hon Barbara Edmonds’ question in terms of the value, we are reflecting, when we talk about increasing the value of the scheme, the fair value of the scheme at a Crown accounts level. So, in effect, the immediate effect of changing that will increase that value of the overarching book.

Thank you, Madam Chair. I’ve got a couple of questions for the Minister around both the R & D tax incentive credit and also the student loan scheme part of this bill. Specifically to both clauses 42(2) and 43(2), with regard to the retrospectivity of this bill, I don’t think the Minister has answered the question around why it applies to the years 2021-22 and onwards as well. So I was quite interested in that, as well.

Also, thanks to the Minister for some of the clarification at the start of this process on Part 5, but, in that, the Minister mentioned that this was one such mistake that is often made. Also, thank you for clarifying the number of companies, I guess, that have fallen into this or who have made this mistake in the past. I was wondering whether there had been any advice on other such mistakes that might be made by companies with regard to this, and, if so, what some of the errors might have been. I was also wondering whether the Minister has received any advice on the potential of fixing some of those mistakes through this legislative process, and, if not, why not. So I’m really interested in that. But, as my colleague the Hon Dr Megan Woods has said, we don’t necessarily oppose this particular change, given that it applies to a small number of companies and will actually make things potentially a little bit easier for them if a mistake has been made.

With regard to clause 44, with the Student Loan Scheme Act 2011 being amended, I do agree with some of the points that have been made by colleagues on this side of the Chamber in terms of the additional pressure that this is likely to place on overseas-based students and what the implications may be in terms of them returning. But the questions that I have for the Minister with regard to this are reasonably specific. I think many of us will have people we know, whether it’s friends or family members, who may be in this position and are based overseas, and this OE tax, as Arena Williams quite aptly named it, is going to affect them. So I’d be really keen to know how this change is going to be communicated to people who live overseas currently. This is going to impact them. For many, if it’s a late payment, it could be because they are already struggling financially.

So, firstly, how will this be communicated, given that the people whom it impacts are likely to be based in various parts of the world? Secondly, what advice has the Minister received as to whether this change is actually also going to have any impact whatsoever on their behaviour? I’m sure there has been modelling done in terms of how much will be made through this. I think it’s pretty clear that the five-year period is to cover an increase in costs, and I think the Minister has mentioned that already. But what modelling has been done on the impact of this change or this increase in cost and late payment in interest charged, and so on and so forth, on changing the behaviour of late payments? Was there any advice on that, and, if so, what could that be?

Those are largely the questions that I have. I’m just really interested in some of the R & D tax incentive questions around some of those other mistakes that the Minister might have received some advice on; if there are any others, why those weren’t included in this legislative fix; and also some of that communication around the student loan.

Thank you, Madam Chair. The reason why I popped up to the Table was just to check if I had missed, perhaps, a regulatory impact statement for the student loan changes. So I apologise to the Minister of Revenue if there is one, but I couldn’t find one on the Table. So my question carries on. Now that the Minister has clarified that it’s the fair value of the loan, and because there is no regulatory impact statement and I can’t see the supplementary estimates on the Table, in case that was there—maybe I should have a look afterwards.

But my question for the Minister is: what is the estimated increase in the fair value of the loan as a result of this particular change in clause 44? The reason why I ask the Minister for this—and if he can provide just some information around the workings—is that the student loan valuation model does reflect current student loan policy and some macroeconomic assumptions. So, obviously, the Minister is changing some of the student loan policy by increasing the interest rate by 1 percent, and, obviously, the macroeconomic assumptions behind this will be quite different. In particular, that’s because the Budget Economic and Fiscal Update yesterday set out what the macroeconomic assumptions were, obviously, for the Budget around lower productivity, unemployment, etc.

But because this is applicable to overseas borrowers, I’m just wanting to understand the macroeconomic assumptions and factors that the Minister or his officials took into account in relation to this, and what that means around the estimated increase, because the fair value is quite sensitive to changes to a number of underlying assumptions, and I know it’s quite difficult to assess it, which is why it’s quite a big undertaking for there to be a valuation of the student loan scheme, and that valuation of the student loan scheme is actually quite an exercise for the actuary that has to do it. But some of the judgments include the future income levels of overseas-based borrowers, so I’m keen to understand the Minister’s reasoning as to how they got to the estimated increase and what the assumption was around their judgments for the future income levels.

The repayment behaviour: so this is quite an important factor, because if you’re going to be increasing the base interest rate, what assumptions have been put into the estimated increase in the fair value of the scheme, given that repayment behaviour may be disincentivised for overseas-based borrowers to pay this because the interest rate has gone up, and inflation, not just here in New Zealand but overseas, is higher. So what is that repayment behaviour? How does that interact when you’ve increased the base rate here by 1 percent, and, obviously, there are the macroeconomic economic factors that I’ve talked about, such as inflation and discount rates.

So I’m really keen to understand that from the Minister, because there is no regulatory impact statement. It might be difficult to find it within the Supplementary Estimates. It could be an evaluation for the student loan scheme that is yet to come, and I understand that is a big undertaking by the actuaries who have to do that for the Crown accounts. What is the estimated increase in the fair value of the loan? Thank you, Minister.

Thank you very much, Madam Chair. The fair value increase as a result of the change in the interest rate is $20.5 million, and that will flow through as a result of the increase by 1 percent.

Prior questions in regards to the increase in interest on loans and having it be referred to as a tax is simply just not the case. When you borrow money, you pay interest, and when you increase the interest rate on that loan to pay someone else, that’s not a tax. So, just for clarity, a couple of the members were sort of drawing that conclusion, and it’s not one based on fact.

I move, That debate on this question now close.

I’m not going to put that question, because I think there is still some detail that could be extracted, but it’s getting quite thin.

Thank you, Madam Chair. An area of importance to the health sector is the number of highly trained people that we have working overseas. Many of our young doctors undertake training overseas doing fellowships, as I did, in other jurisdictions in order to bolster their qualifications before ultimately coming back home to New Zealand. Just last week, we met the president of the New Zealand Medical Students’ Association. She reported she had $140,000 of student loan debt before she even graduated. Now it would be normal or even desirable for people in her situation to spend some of her training overseas, and we’re learning today that additional burdens of repayment are going to be put on those young doctors.

I want to ask the Minister what modelling has been done and what advice has been received on the likelihood of our talented young people returning home when they face higher penalties in terms of student loan debt repayments, should they do so? We have over 1,000, or perhaps 1300 specialist vacancies in our hospitals and we have multiple junior doctor vacancies at our hospitals, and part of what’s contributing to the junior doctors being on strike at the moment is the high workloads that they face. For these reasons, I want to know about any impacts on, particularly, strategically significant workforces that this student loan additional repayment burden is going to have.

Well, I’m glad the member Ayesha Verrall has realised that one of the opportunities that we do have is to encourage our doctors back to this country, and one of the good things about the student loan scheme is that when they come back to New Zealand from overseas and have been here longer than six months, they don’t pay any interest on their loan. So there’s a really good incentive for the health system in terms of workforce to come back to New Zealand, set up roots, and work here in the health system, because you won’t pay any interest on your student loan when you’re back home here in New Zealand.

Thank you, Madam Chair. I’m looking forward to the Minister answering my questions about IRD’s powers to recover what he has said is 90 percent of the student loan debt, and the questions of my colleague the Hon Barbara Edmonds about the IRD’s ability to do this and whether he has sought advice on this, because given his last answer, we must be expecting a huge uptick in IRD’s ability to reclaim that debt, given that in the financial year ending June 2023, they only managed to recover $16,000 of it. He must have some new tricks up his sleeve, and I’m really interested in him answering the questions that I put to him, which he hasn’t answered for the committee.

But I want to ask a new line of questions to the Minister. The first is: does he agree with his colleague the Hon Penny Simmonds, who said on 30 May that “The late payment interest for overseas and New Zealand based borrowers”—and New Zealand - based borrowers—“will also increase by 1 percent.” The second question, of five that I have about that, is where that is in the bill. Thank you.

I move, That debate on this question now close.

The question is that debate on this question now close.

💬 Dr Lawrence Xu-Nan: Point of order. Point of order.

CHAIRPERSON (Maureen Pugh): Those of that opinion—

💬 Dr Lawrence Xu-Nan: Point of order.

CHAIRPERSON (Maureen Pugh): —will say “Aye”; to the contrary “No”. When a vote is under way, we do that in silence.

💬 Dr Lawrence Xu-Nan: I’ve been calling point of order, sorry, Madam Chair. It’s just that we have an amendment that hasn’t been mentioned at all by my colleagues.

CHAIRPERSON (Maureen Pugh): We’re putting the vote now.

The question is that Arena Williams’ amendments to clause 44 be agreed to.

The question is that Camilla Belich’s amendment to clause 44(2) be agreed to.

The question is that Francisco Hernandez’s amendment to delete clause 44 be agreed to.

Arena Williams’ amendment to delete clause 44 is out of order as being the same in substance as an amendment previously not agreed.