Student Loan Scheme (Repayment Bonus) Amendment Bill — Second Reading In Committee Third Reading 
Student Loan Scheme (Repayment Bonus) Amendment Bill — Second Reading In Committee Third Reading 
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Student Loan Scheme (Repayment Bonus) Amendment Bill 
Second Reading 
Debate resumed from 10 September. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 I will be very brief on this. One would have to be completely crazy to take up the student loan repayment bonus. Therefore I think it is important that before people take up the repayment bonus they receive adequate advice so that they can ensure that they are making a prudent decision. There are very very few circumstances in which it would be in somebody’s best interests to take it up. My colleague Trevor Mallard has put forward an amendment to that effect which would ensure that somebody receives appropriate advice and guidance before taking up the repayment bonus. I commend his amendment to the House. 
COLIN KING (National—Kaikoura) 
: 
 It is indeed a pleasure to speak to the Student Loan Scheme (Repayment Bonus) Amendment Bill during its second reading. I would like briefly to cover off the intention of the bill the reasons why someone would take advantage of its provisions and some of the work that was given significant consideration by the Education and Science Committee. 
I will start off by saying that this bill is consistent with the National Party’s goals of creating incentives for people to get ahead. It is consistent with the National Party’s vision of aspiration and making the most of one’s opportunity. It is a worthy bill. It is designed to do two things: first to encourage students to pay back their student loans quicker; and second to reduce the cost of or add value to the student loan scheme. From that point of view I would like to go through some of the points that I think are good reasons why people will take up the opportunity. 
The select committee learnt that there are a significant number of people who are risk-averse or debt-averse and that these are the people who will take up the opportunity. We learnt that some 40000 people have paid off in effect more than the compulsory part of their payments. The projections from the officials are that this bill would increase that number by another 14000-odd to a level of 54800 people. 
Student borrowers who have completed their degree and are thinking of going overseas would be very wise to take up this opportunity while they still have that interest-free component. The facts and the figures also show that this bill is designed so that borrowers who are overseas can take advantage of the bill’s provisions. Fifteen percent of all borrowers in the student loan scheme are overseas and that is 77000 people. Of that number a significant proportion have overdue payments and they are a group that the Inland Revenue Department has great difficulty managing. It is expected that 4800 borrowers overseas will take advantage of this opportunity. There are also carers or parents who would like to give their children a first-class education with a debt-free start; those people will certainly take up the opportunity. A basic analysis of the figures shows that borrowers in the last 3 years of their student loan repayment schedule will be advantaged by doing that. 
I would like to take up the point mentioned by Mr Hipkins at the conclusion of his speech that there needs to be a safety or health warning for borrowers who enter into this situation. I suggest from my experience that the advice should be given long before students takes on a student loan to ensure they are undertaking education that they will see value in. There certainly is value in education but if in effect students do not take up those opportunities I say that it would be far better for them long before they start their studies to give consideration to taking on that debt or repaying it. 
In the debate on this bill Opposition members are effectively backing those who are privileged against the hard-working Kiwis. Members on the other side of the House want to take a serious look at themselves. They no longer represent the working class of New Zealand; they are a combination of university lecturers unionists and other people. 
This bill has a lot to recommend it. I am very confident that it will add value to a lot of people’s decision making and on that basis I take great pleasure in supporting it. 
Hon MARYAN STREET (Labour) 
: 
 Periodically the Vice-Chancellors Committee releases a report on the destination of graduates from universities and that tends to chart the salary band that new graduates go into. Typically it is not very high. Frequently we are told that a degree will enhance people’s earning power and therefore they will be able to earn more in their lifetime—and I hope that is true. I am concerned however that many people who on emerging from a university or a polytechnic with a degree and encumbered by student debt are not in a position for many years to take advantage of this legislation. We have legislation that is designed for the wealthy—for those who have additional money left over after they have already paid off what they need to pay off on their student loan and have then paid out for living expenses. If one has a spare $500 sloshing around after that then this bill may be of some assistance to those people. However for the vast majority of people this is not going to provide any relief at all. I am pleased to say however that there is one redeeming feature to this legislation: my colleague Trevor Mallard’s Supplementary Order Paper. I congratulate the Government on accepting the Supplementary Order Paper even though it was not accepted in the select committee. It was accepted by the Government in the end because it is the only thing that makes this bill tolerable and it is the only reason why Labour will move to support it. 
The Supplementary Order Paper relates to the “health warning”—the piece that says “for goodness’ sake get some financial advice”. It inserts new section 45G with its heading: “Commissioner must advise borrowers to seek financial advice”. In other words the commissioner is required in all material to provide information about repayment bonuses and make sure that people get financial advice. The only people that this bill really suits are rich stupid people. They are people with extra money but too stupid to realise that their money would work better for them if they put it into an interest-bearing account than if they reduce a loan that does not have any interest on it. It is particularly ridiculous legislation in that the only time it is likely to make an impact on anybody’s student loan debt is towards the very end of the life of that debt. We will not stand in the way of it however because the Government has seen fit and seen the sense of accepting my colleague’s Supplementary Order Paper that inserts this “health warning”. 
Bill read a second time. 
In Committee 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I seek leave for the provisions of the Student Loan Scheme (Repayment Bonus) Amendment Bill to be taken as one question. 
The CHAIRPERSON (Eric Roy) 
: Leave is sought for that purpose. Is anyone opposed to that course of action? It appears not. Leave is granted. 
Clauses 1 to 4 
Hon MARYAN STREET (Labour) 
: 
 I would like to draw the Committee’s attention to some of the provisions in the Student Loan Scheme (Repayment Bonus) Amendment Bill but I would also like to inform the Committee about some of the advice that was received by the Education and Science Committee in consideration of this bill. The advice pointed out that borrowers with higher student loan balances in relation to their incomes and longer repayment horizons are less likely to benefit from this bonus offer. The advice given to members of the select committee was that these borrowers would clearly have less disposable income to make voluntary repayments over and above the required amount and that they would be less likely to be able to fully repay their loan in one payment. They face long repayment times typically and there is no incentive to repay earlier as the loan balance is not adjusted for inflation. 
One of the examples that were provided in this advice was the case of a fictitious woman with the name of Fiona. The advice stated that this fictitious person—fictitious but typical—was a recent graduate with a large student loan of $50000 and a modest income of $32000. A modest income is often where graduates start. A relative had come into some money or had won Lotto and that person decided to give Fiona the opportunity to pay off her entire loan so that she no longer had to make compulsory repayments and could be free of her student loan debt earlier than would normally be the case. At Fiona’s income of $32000 she could expect to repay her debt in 18.6 years assuming that her income grows on a basis of 5 percent per annum and assuming that the income threshold is 2.5 percent. In this time Fiona would have repaid $50000. If a family member who had won Lotto decided to pay off Fiona’s student loan it would be a silly thing to do. In fact that relative would do better to give Fiona the money which she could put in an account that was generating interest and develop a nice nest egg for her first home. Perhaps Fiona could take out a mortgage put down a deposit on a first house and be a lot better off. If she invested that money elsewhere—let us say at a lower rate of 5 percent for example—instead of repaying her loan she would be $15000 better off in today’s dollars. 
The financial logic is missing from this legislation. When one looks at particular examples it is perfectly clear that there is no logic to it. It is nonsensical. But if people are able to take it up the Labour Party will not stand in their way. The only thing that rescues this legislation is Trevor Mallard’s Supplementary Order Paper which I am pleased that the Government has accepted. It requires that a statement advising that financial advice be sought—a health warning effectively—be attached to all material that goes out with any promotion around this legislation. The legislation patently does not make financial sense and if people are wealthy enough to take it up then one assumes that they are wealthy enough to get the kind of advice that would tell them so. In the event the Supplementary Order Paper will provide some protection. It will provide protection so that people do not find themselves in the position of having misused their money if they are in the lucky situation of being able to afford additional repayments. 
I do not have a lot of enthusiasm for this bill. The only thing that makes it passable is the Supplementary Order Paper. Thank you. 
ALLAN PEACHEY (National—Tamaki) 
: 
 I am very pleased to stand and take a very brief call in the Committee stage of the Student Loan Scheme (Repayment Bonus) Amendment Bill. As chairman of the Education and Science Committee that held hearings on the bill I compliment the Opposition on agreeing to support the bill. Opposition members as did Government members worked very hard to develop a scheme that was workable and although we had a lot of debate around the Supplementary Order Paper that Mr Mallard put forward I congratulate him on his success in having that Supplementary Order Paper accepted. 
The important thing is this. We are talking about taxpayers’ money and we are talking about people who borrow money for student loans. The message the Government wishes to send to borrowers is that it is in their best interests to pay off their loan as early as they possibly can and there will be a financial incentive a so-called 10 percent bonus if they do that. We must always remember that we are talking about taxpayers’ money. We are talking about other New Zealanders who pay tax so that students can borrow money to finance their education. I do not know of too many New Zealanders who object to that but I do know that a lot of New Zealanders worry about the levels of debt that are accrued and about the way that some of that money is being used. This bill sends a very very strong message. It is the Government’s wish supported by the Opposition that if one is a borrower one’s student loan is to be paid off as quickly as one possibly can. It is in the borrower’s interest and it is in the taxpayers’ interest. Thank you. 
STUART NASH (Labour) 
: 
 I stand up to speak in support of the Student Loan Scheme (Repayment Bonus) Amendment Bill in its Committee stage. I spoke against the bill it in its first and second readings but with the sensible acceptance of the Hon Trevor Mallard’s amendments I do not oppose it. 
I am actually pretty ambivalent about the bill to tell the truth. It is a bit of a nothing bill that will help very little and achieve not much at all. Let us be honest about this: as outlined in the executive summary in the regulatory impact statement of the bill this bill is just another one of National’s election promises that is targeted primarily at those who are in the upper income bracket—like the National tax cuts the super-city legislation and the 90-day “Fire at Will Act”. 
This bill does nothing for students who have elected to take courses that result in a salary that leaves very little discretionary income once the bills are paid at the end of each week. This of course does not mean that these professions are any less valuable to society than those professions paying significantly higher; in fact the case may be quite the opposite. I tell members that if I was dying I would rather have a nurse than a financier look after me and if I was after quality education for my children I would much prefer to have a teacher than a financier. Yet the health and education sectors under this Government after only 9 long tortuous months have taken a huge hit under Ministers Ryall and Tolley. 
As I was saying as I made my way through the regulatory impact statement I was hit more by what is not here than by what is. Never once does the statement outline predict or forecast how many students this bill will help—never once. I wonder why that is. I suspect it is because when the numbers were done—and they do exist because there is a very light financial analysis; in fact it is surprisingly light for a taxation bill—some key assumptions must have been made around the actual student numbers. However the Minister in charge of this bill the Hon Peter Dunne was too embarrassed to include them in the regulatory impact statement because he realised that very few students will take advantage of this scheme. That is why I say that this bill is a little bit of a nothing bill. 
Hon Member 
: That’s right. 
STUART NASH 
: It is. 
The regulatory impact statement also states: “Inland Revenue and the Ministry of Education officials will continue to monitor repayment trends over the next few years to assess the impact of the voluntary repayment bonus policy. The student loan integrated data set will enable officials to get an understanding of the debt income and demographic characteristics of those making additional student loan repayments. It will take several years however for a sufficient time-series to emerge to enable good outcome data to be collected.” 
I can tell officials that the data will say one of two things. It will say either that those earning large salaries from high socio-economic backgrounds with professional degrees in careers like accountancy law engineering commerce finance medicine dentistry etc. will pay off their loans noticeably quicker than those in less well-paying professions or that the numbers in those areas will continue to stagnate or drop as those students understand that there is actually no huge financial advantage of early repayment. It is not the Inland Revenue Department and education officials who should be monitoring progress in this scheme; it is the sociologists and the Treasury officials who should look at the data that comes out of this early repayment option in an effort to understand the level of financial literacy amongst our graduates and/or understand the reason why graduates would pay back an interest-free loan early when there would be very little financial benefit to them at all. 
These data are the ones that the Minister should be interested in and I hope he uses them wisely for future development of any student loan repayment scheme. In fact he probably will not get the chance because in 2 years and 3 months there will be a Labour Minister of Revenue and a Labour Minister of Education and they will have the ability to view these data and put them to good use. Thank you. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 Let me begin— 
Hon Darren Hughes 
: He’ll still be Revenue Minister! 
Hon PETER DUNNE 
: —we shall see—by indicating to— 
Hon Trevor Mallard 
: Not if Charles wins his seat! 
Hon PETER DUNNE 
: —pigs might fly—the Hon Trevor Mallard that the Government is accepting the amendment he has moved and I appreciate the interchange there has been in terms of developing the appropriate wording. As I may have indicated by a shrug of my shoulders during the second reading I do not see the insertion of new section 45G into the Student Loan Scheme Act as proposed by Supplementary Order Paper 37 as in any way contrary to the intent of the Student Loan Scheme (Repayment Bonus) Amendment Bill. I make one other comment though that picks up on what the previous speaker was trying to raise regarding who possibly might take advantage of this. I thought the Committee might be interested to know the figures to date. Since this bill has been around the prospect of it has attracted a great deal of interest from some 1800 borrowers who have repaid either all or ten-elevenths of their loan balance. They have been getting an average bonus of around $875. Already before the bill is passed because it has a slight retrospective element there have been 1800 student loan borrowers who have chosen to take advantage of it. 
Chris Tremain 
: There’s financial sense in that isn’t there? 
Hon PETER DUNNE 
: There is huge merit and sense in that and it really goes to the heart of what this measure is about: incentivising people to make earlier repayments if they are in a position to do so. It is very difficult to argue against that proposition. The fact that nearly 2000 students have before the bill has passed through the House chosen to take advantage of that opportunity— 
Hon Trevor Mallard 
: Is that more or less than the normal early repayments? 
Hon PETER DUNNE 
: It is a considerable figure and I think that the Committee should be delighted that— 
Hon Trevor Mallard 
: Is it more or less than normal? 
Hon PETER DUNNE 
: The member asks whether it is more or less than normal. Well there has not been huge provision for early repayment to this day and that is one of the other measures being addressed. This bill incentivises people to make those early repayments and 1800 of them will benefit from its retrospective element. I simply wanted to put that information before the Committee because some members have been asking who will take advantage of it and what the point of it is. Already significant numbers are taking advantage of it. I think that puts it into perspective. I acknowledge that this measure will pass with the support of all sides of the Chamber and I thank members for that. 
Hon TREVOR MALLARD (Labour—Hutt South) 
: 
 I will speak very briefly to say thank you to the Government and especially the Minister of Revenue for his forbearance in the negotiations of the Supplementary Order Paper for the third time. I thank the officials for putting us back on track to get a defined term rather than an undefined term. For members who have not seen it there is a new Supplementary Order Paper on the Table. It is the same as the old Supplementary Order Paper as it was for quite a period of time but there was an interim period where something else was there. I do not want to say a lot about this bill. I think Maryan Street put it pretty well. It is the bill for people who do not have a lot of financial literacy especially if they are repaying more than 2 years before the time is due— 
Hon Darren Hughes 
: Not the Minister of Finance then? 
Hon TREVOR MALLARD 
: No I think the Minister of Finance has a lot of financial literacy but not much political sense. That might be the case. In his case it could be argued that he has his hand in taxpayers’ pockets and in this case in a lot of student loan borrowers’ pockets. People would be relatively foolish to pick this up more than 2 years out. There would have to be a very good reason for it and that reason is not a financial one. 
COLIN KING (National—Kaikoura) 
: 
 With regard to the Student Loan (Repayment Bonus) Amendment Bill as it came to the select committee there were areas that needed to be given consideration to improve it. As the Minister in the chair the Hon Peter Dunne mentioned a number of people have taken up the opportunity of the repayment bonus. One thing the select committee had to do was set the date of the implementation of this bill to 1 April 2010. Effectively that gives a 12-month period for those who wish to take advantage of the bonus repayment scheme to build up a history of repayments. 
The other thing we had to look at was around the non-salary non-wage earners’ situation. As the bill came to the select committee it would have given more than 12 months after the tax year for a person to decide on what amount he or she would pay. In the end the select committee settled on 7 May after the end of the tax year so there is not an unfair advantage to those persons. But it gives them sufficient time to decide what they can or cannot do. 
The other issue that bears mentioning is the basic figure of $500 for a 10 percent repayment bonus. The question arose of what happens if there is less than $550. That was something the select committee had to wrestle with and we came to recommend that the derivatives of under $550 would be the maximum amount of bonus repayment. 
The other point I wanted to mention is the multiple voluntary repayments in the tax year. As the bill came to the select committee it would have been just a last payment. We looked at that and set it as being payments over and above the normal repayment scheme that were eligible for that tax year. 
I believe the bill is in good shape. The select committee worked very very well on it. I think it is appropriate in the Committee stage of a bonus repayment bill to mention the Education (Freedom of Association) Amendment Bill that was drawn out of the ballot. That is one we all look forward to debating because we believe that that too underpins and supports the principles of choice. Thank you very much. 
JACINDA ARDERN (Labour) 
: 
 I am pleased to rise and speak to the Student Loan (Repayment Bonus) Amendment Bill and to support the statements that have been made by my colleagues up until now. Before we go too far into this debate it is important we size the issue we are talking about. I have done a little bit of reading on the current state of our student loan scheme the uptake rate the size of the debt and the number of young people who are impacted by this scheme as it stands because I think it is important that we understand how many are captured by this bill. 
Twenty-three percent of New Zealand’s population over the age of 15 have used our student loan scheme. That is massive. Every time either this Government or past Governments have changed the scheme it has impacted on quite a significant part of the population. That is an important factor to keep in mind. As of June 2008 530000 young people in New Zealand had a student loan. That is quite a significant number of young people who would have greatly welcomed Labour’s significant policy change at the election before last when we removed interest on student loans altogether. That was the most significant change I have seen in my lifetime in terms of improving our student loan structure as it currently stands. 
But what does the bill do? Before I go down that track I will talk a little bit more about what the bill is trying to achieve. In order to establish that one needs only to look at the commentary on the bill. It states that the bill’s “aim is to encourage borrowers to repay more than the compulsory minimum amount so that they pay off their student loans sooner.” That is a very admirable goal. Why would we be trying to achieve such an admirable goal? Well one does not have to look past for instance the study on doctors in debt which found that two-thirds of doctors intended to travel overseas after they graduated in order to pay off their debts sooner. Students are willing to go to great lengths to pay off the significant debt that hangs over them. Student debt has almost doubled. The average debt in New Zealand for a student has almost doubled since between 1992 and 2007 if my memory is correct. We need look no further also than the 10-year student income survey which found that 89 percent of students with a loan said that their loan impacted on their future savings. The collaborative study by the New Zealand University Students Association and the New Zealand Medical Association found again that 83 percent of students found it difficult to save as a consequence of their student loan. Those reasons in themselves are good enough reasons to try to deal with the issue but anecdotal evidence suggests that student debt also impacts on housing and child rearing. 
There are very good reasons to try to assist our students and young people to pay off their loans sooner. Will the bill do it though? I have a lot of questions about that. Firstly what helps students pay off their loans sooner? First and foremost it is having the cash to pay off the loans. It is the jobs they are able to get after they leave university and the capacity they have to earn. Women students are significantly impacted by this. We know that given our pay equity issues in New Zealand women will be worse off than their male counterparts. That will impact on the rate at which female students pay off their loans. That is the first place we need to look. 
The second place is the incentive issue. Students will pay off loans sooner if there is an incentive for them to do so and if they have the capacity to pay in the first place. That means that the bill will positively affect those who are already able to pay off their loans quicker. They have the spare cash available. That is what incentivises those particular students. 
But beyond that we also need to look at whether any financially literate student will benefit from the scheme. I think that is why Trevor Mallard’s amendment is so critical. It is imperative that we be honest with students. If we are and the aim is that they pay off their student loans sooner then surely we should be providing them with advice that they might actually be better off keeping the money in the bank earning interest on it and then paying off something later down the track. It is important that we are honest about what we are doing in the bill. I think Trevor Mallard’s amendment does that but without it I think there is a long way to go on the kinds of incentives and arrangements that we try to put in place to tackle what is a significant issue in New Zealand. 
The question was put that the amendment in the name of the Hon Trevor Mallard to clause 4 be agreed to: 
to insert the following section: 
45FA Commissioner must advise borrowers to seek financial advice 
The Commissioner must in all material that provides information about repayment bonuses and that is made available to all borrowers include a statement to the effect that borrowers are advised to seek appropriate financial advice before making excess repayments in order to obtain a 10% bonus. 
Amendment agreed to. 
Clauses 1 to 4 as amended agreed to. 
Bill reported with amendment. 
Report adopted. 
Third Reading 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Student Loan Scheme (Repayment Bonus) Amendment Bill be now read a third time 
. Before commenting very briefly on the bill’s provisions I take this opportunity to acknowledge the members of the Education and Science Committee and the chairman Allan Peachey for the job they did in considering the bill. I also acknowledge the work the officials have done in the preparation and development of the bill their advice to the select committee and some of the subsequent developments that have taken place. It has been a very worthwhile process and I simply want to place on record my thanks to all those who have contributed to the outcome we are about to put in place. 
The bill is a comparatively straightforward measure that introduces a repayment bonus of 10 percent for students who seek to repay their student loan balances early having a minimum balance of $500 at the time. This is consistent with an election commitment made by the National Party at the time of the general election. When the bill was in the Committee stage an amendment was moved by the Hon Trevor Mallard effectively to provide for a health warning - type statement to be included in the advice the commissioner must give to prospective repayers if they are considering making early repayments. I acknowledge him for the work he did in the preparation of the amendment. The Government was pleased to accept the amendment because it does I think contribute to the spirit of the legislation. I also think it is consistent with the general view that has been developed over a number of years about people obtaining good financial advice before making prudent or otherwise investment decisions. 
The real point here is that the bill seeks to incentivise students who are in a position to do so to pay off their student loans sooner. One of the Opposition speakers during the Committee correctly described that as a highly laudable objective. We have approximately $10 billion in outstanding student loan balances. It is in both the Crown’s interests and the interests of individual borrowers that the loans be repaid as quickly as possible and anything we can do to incentivise that situation has to be beneficial. Those were the main reasons behind the bill. It has emerged from the Committee with pretty much universal support across the House. As I indicated to the Committee 1800 student loan borrowers have already sought to take advantage of it. That is a good testament to the impact the legislation will have. I am more than happy to commend the bill to the House. 
Hon MARYAN STREET (Labour) 
: 
 I rise to take a call on the third reading of the Student Loan Scheme (Repayment Bonus) Amendment Bill. I too would like to add my thanks to the work that Allan Peachey has done as chair of the Education and Science Committee in the consideration of the bill. I will also underscore the Minister of Revenue’s thanks to officials for their work in revisiting a number of issues that arose in the course of the debate in the Committee stage and during the select committee’s consideration of the bill. I am grateful to officials for their work and their support in that regard. 
I also congratulate the Minister on accepting the Supplementary Order Paper that was put forward by my colleague Trevor Mallard. That is the bit that redeems the legislation. 
Although I understand the intention is to incentivise repayment of student loans earlier than might otherwise be the case this legislation does need close consideration by any students who are looking at taking up the offer and maximise the benefit of the legislation. 
Maximising the benefit of this legislation—that is getting the 10 percent return on any amount over $500 that is repaid on a student loan over and above the statutory repayment amount required—may fly in the face of how students might be able to maximise the return on that additional money. The problem is that it will only be towards the end of the lifetime of a student loan that there may be any financial advantage. Of course retiring debt is highly desirable but if students are faced with the choice of placing money into an interest-bearing account and having it work for them in a way that over time gains them more than having a slight reduction in the total of their student loan repayable then they would be fools to take up this provision in the legislation. That is the long and the short of it. In the end the Labour amendment in Supplementary Order Paper 37 which has been accepted by the Government and improves the legislation allows us albeit in a lukewarm way to support the legislation. The amendment requires that all advertisements that go out accompanying this bill must also include a statement that people are advised to get appropriate advice so they know what they are doing with their money. 
I cannot see why this legislation was ever brought to the House under urgency and I dispute even at this stage the need for that to happen. But I support the legislation now given its improvement with the addition of the health warning that has to go out to all students who take on student debt. They will be able to work out exactly at which point in their loan repayment there may be a financial benefit to them. It certainly will not be apparent in the first few years when they are likely not to be earning very much. 
LOUISE UPSTON (National—Taupo) 
: 
 I am pleased to stand to speak to the third reading of the Student Loan Scheme (Repayment Bonus) Amendment Bill. I start by saying a word of thanks to the able chair of the Education and Science Committee my colleague Allan Peachey; the deputy chair Trevor Mallard; the other committee members; the officials who have worked particularly hard on getting this bill through; and the Minister of Revenue whom I applaud for accepting the Supplementary Order Paper put forward by Trevor Mallard today to make sure that we have broad support for this bill. I think that does make a big difference. It is a strong message to New Zealanders when the Government is supported by the Labour benches in legislation. This bill provides an incentive for young New Zealanders who have a student loan to pay off their loan faster. 
I just make a couple of comments to put some context around why the Government believes that it is important for young New Zealanders to pay their debts off faster. I refer to an article in the  
New Zealand Herald  
earlier this year that talked about the surge in individual debt which has gone from $62.7 billion to $175 billion. So basically New Zealanders are borrowing at a significant rate and we have now individual borrowings of $41000 per head of population. Student loans are obviously a small component of that figure but today I saw that the student union’s website had put that figure on its ongoing loan calculator at $10.599 million. It is small amount of the overall New Zealand debt but it is the message for young New Zealanders that paying off debt should be a priority and is important; and in this case obviously it is a debt to the Government so it is a debt to other hard-working New Zealanders who pay tax and therefore it is important that the Government incentivises students to pay off their loans sooner. 
I was really pleased also that the Opposition has questioned why this bill was brought in under urgency. The Minister Peter Dunne indicated the level of interest already out there for this incentive—the fact that 1800 young New Zealanders have already opted to make bonus payments if you like and to the value of I think about $875 in bonuses. That is brilliant and is exactly what this bill is designed to do. I am sure there will be an even greater level of interest now that they see this legislation will pass and that it is supported so broadly across the House. 
I am really pleased to be able to commend this bill in its third reading because shorter repayment times for New Zealanders will mean that they become debt-free earlier. That will give them choices in their lives and their futures about buying a house having children going into business and any other options given they have removed some of the debt they had been saddled with as students. 
Hon TREVOR MALLARD (Labour—Hutt South) 
: 
 I again just want to speak briefly to the third reading of the Student Loan Scheme (Repayment Bonus) Amendment Bill. I thank Government members for eventually accepting the health warning about it. That had been put to them and rejected at the Education and Science Committee but they had some sense about this when the Minister became involved and we were in the House. So I do thank them for that. 
I disagree deeply with the member for Taupo and the comments that she made as to whether the Labour Party is giving its wholehearted support to this bill. It is a matter of very fine balance and a matter of us keeping our word. We said we would support the bill if the health warning went in but frankly I hope that not many students will take up this measure especially if they do so in a period that is greater than from 18 months to 36 months before the end of repaying the loan. If they do that they will end up if one considers the interest effects paying back more than they need to pay. They would be better off if they put their money in the bank and continue to make loan repayments until somewhere in the period of from 18 months to 36 months out from the end of loan. 
I accept there will be a number of other reasons that people want to make repayments and I think the most logical ones are where they receive tied contributions from other people. When a grandparent wants to help a student or graduate with repayments on his or her loan and is concerned that if he or she just gives the kid the money it might not quite make it into repaying the loan in that circumstance where there is an element of a tie-in I think there is a benefit. I cannot think of many other circumstances where that will occur. 
If one wants to look really carefully at who will benefit from this— 
Hon Darren Hughes 
: Who is it? 
Hon TREVOR MALLARD 
: Well it is the Minister of Finance. He is the person who will benefit from this legislation. When we look at the net situation we see that this measure is quite fiscally positive for the Government. 
Hon Darren Hughes 
: Twenty bucks a week? 
Hon TREVOR MALLARD 
: Not many people will get $1000 a year every year out of it. The amount of repayments required to get to that level would have to be at the level of $10000 a year. I think not many people will make additional repayments at that level but it is fair to say it would be better to be a person in that position than to be someone who is trying to get the last 20 bucks off Bill English for his cleaning bill paid through the taxpayer. 
This is pretty minor legislation. On balance the Labour Party supports it because we said we would support it if the Government accepted our amendment. We will vote for it but without much enthusiasm. 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I stand on behalf of my colleague Metiria Turei. It is paradoxical that today we are voting on the Student Loan Scheme (Repayment Bonus) Amendment Bill which according to Mr Mallard has a marginal positive benefit to the Government’s position given that the Government has just announced it is giving away $400 million to the worst polluters in the country. Since 1992 we have had a student loan scheme in New Zealand whereby students are required to borrow a significant proportion of their tertiary education costs. This scheme was a major deviation from the previous social contract which provided tertiary education at low cost to the public. The principle behind the earlier approach—because there was a principle behind the earlier approach—was sound. Education in general and tertiary education in particular is a significant public good. There are immeasurable benefits to the community and economy of a highly educated population. Therefore it is of great benefit to the public overall to have significant investment of public funds in public education. For example we know that the higher the level of a mother’s education the more likely her children will be to succeed in education. 
Hon Trevor Mallard 
: I raise a point of order Mr Speaker. I apologise to the member. I seek leave for the Standing Order that requires a Minister to be present in the House to be set aside—although I see there is another Minister here—so that Kate Wilkinson can accompany me to the presentation of the pay equity petition that is occurring now. 
The ASSISTANT SPEAKER (Eric Roy) 
: That is not really— 
Hon Trevor Mallard 
: I am seeking leave for the Standing Order to be set aside so that Kate Wilkinson can do that. 
The ASSISTANT SPEAKER (Eric Roy) 
: There is a Minister in the House. 
Chris Tremain 
: I raise a point of order Mr Speaker. Given that there are a number of Ministers in the House I would have thought that the application would be ruled out of order. 
The ASSISTANT SPEAKER (Eric Roy) 
: The member is seeking leave. If members feel it is inappropriate they can refuse the leave. Is anyone opposed to that course of action? Leave is not granted. 
Dr RUSSEL NORMAN 
: We know for example that education is a key means to alleviate poverty and particularly intergenerational poverty. We know that New Zealand since the 1980s has become a grossly unequal country and as the level of inequality has grown the level of educational inequality has also grown. However with the introduction of the student loan scheme that social contract was torn to bits. Instead the mantra of education as a private good was imposed and a whole generation of young New Zealanders have borne the brunt of that failed social experiment. 
Why has it failed? Because of the social and economic consequences our communities have suffered as a result. First the student loan scheme entrapped very young students who were in tertiary education in breach of basic contract law. The loan contracts were not enforceable against them. That loophole was quickly fixed but the consequences of loaning thousands of dollars to young people aged 16 and 17 years old is still being felt. These young people are offered no financial advice as to the consequences of borrowing for their fees. It is more than likely that the educational interests one pursues at 16 will be quite different from those one would pursue later in life and this leads to many young students borrowing for tertiary education degrees that they never use. The system also created an incentive for unscrupulous operators to rort the system. Some courses offered gadgets as incentives to young people who fooled by the hype took out thousands of dollars in loans to do courses of extremely dubious quality finding themselves at the end of the course thousands of dollars out of pocket and still out of work. 
Some remedy was made to resolve this but the core issue the cost of the systemic failure to provide quality tertiary education to New Zealanders as a matter of their citizenship remained. For as long as the user-pays approach is pursued some will rort the system and students will continue to pay and they do so all through their lives. We know that young people leave the country to pursue higher-paying jobs overseas and often stay there for longer than they would otherwise in order to pay off their loans. We know that young people delay purchasing housing because they must use their first 5 to 10 years of income to repay their loans rather than save for their first homes. We know that young couples delay having children because of the financial pressures placed on them by the student loan system and we know that Maori Pacific and women students are disproportionately affected by the loan scheme and have to pay for much longer periods than their Pakeha male counterparts. 
There has been a lot of tinkering with the student loan system and this bill is just another fiddle. This bill will benefit a minuscule number of students and otherwise provide no relief to the core problem of the student loan scheme. It is unfair and unjust. The Green Party is committed to a sustainable prosperous Aotearoa New Zealand that is ready to meet the challenges of this new century. That is what the Green New Deal is all about. We must invest in our communities in ways that will deal with the twin crises that face us—climate change and the recession. Investing in the education of our young people now is critical to our future prosperity. The Government has chosen to take New Zealand backwards instead. Cutting the training incentive allowance so that beneficiaries can no longer access that support to do degree courses is simply increasing poverty and pulling up the ladder after one has already climbed it. Slashing funding to universities and polytechnics is taking education out of the hands of those most vulnerable communities that need it the most. The Green Party opposes this bill. It will make no difference to the educational needs of those who need it the most. 
Hon Sir ROGER DOUGLAS (ACT) 
: 
 As a member of the Education and Science Committee I too would like to join others who have congratulated and thanked Allan Peachey for the way he chaired the committee. It has been funny from my perspective to hear the lukewarm response to this bill from Green Party and Labour Party members and to hear them arguing generally that it is helping the wealthy more than the poor. Their argument has been that wealthy ex-students will be able to make higher levels of voluntary payments and that therefore in some way this bill is discriminatory. The flaw in their argument is that they are comparing wealthy ex-students with so-called poor ex-students. The overwhelming majority of students improve the incomes they can get in life by undertaking tertiary education. In other words poor ex-students are relatively wealthy by most standards. 
The people we should be more concerned about are not the poor students but the hard-working low-income people who pay the taxes that cover the interest and loan write-offs of university students and tertiary students. The people we should care about and whom the Labour Party and the Greens are supposed to care about are the ones who do not go to university. They are the people who get a job when they are young. They are the people who are forced to pay for the education of those who will one day earn far more than they do. 
Let us take a look at who undertakes tertiary education. Eighty percent of students come from households that earn more than the average wage. They are the families with money. They are the families with capital. They are the wealthy. A study undertaken in 2001 has shown that those in the top income bracket are five or six times more likely to go to university than the ones in the bottom income bracket. We send these rich kids if we want to call them that to university with lavish student loans and large subsidies paid for by low-income families. They then graduate and go into relatively well-paying jobs. 
The Green members and Labour members wring their hands about the high level of student debt. Never mind that university students were wealthy when they went to university. Never mind that ex-students will pay off their loans quickly because of their higher incomes. Never mind that the people who pay for the lavish benefits are the hard-working poor who entered the labour force at 17 or 18 years of age and missed out on a tertiary education. In fact it is not just that this bill is in some ways unfair on people on low incomes. We would have to say that that is also true of a lot of tertiary education support. 
But who do we take the money from? We take the money from the people who leave school at 17 and we deliver it generally to those with wealthy backgrounds. Policies like this one take money from the cleaners the dishwashers the bus drivers and the people who work in McDonald’s who receive the minimum wage and deliver it to the sons and daughters of the doctors from Fendalton or the sons and daughters of the lawyers and accountants of Karori. That is the reality. 
These programmes unfortunately are sold as if they come from political parties that care about those on low incomes. The Greens and Labour tell people that the reason we must give these lavish benefits to the wealthy is so that those on low incomes have access to university. Middle-class welfare is one thing. Middle-class welfare dressed up as wealth distribution to the poor is a fraud. 
We have had the spectacle in the Committee stage and in the second reading of Labour members saying to students to not pay back their loans early because it would be to their disadvantage. In most cases I agree that it would but it would be of benefit to the country. It seems to me that students have received lavish benefits that often were paid for by low-income people. I personally did not support the Mallard amendment which had general agreement. It seemed to me that what we were doing was advising people to spend $200 to save $100. It simply did not make sense. 
RAHUI KATENE (Maori Party—Te Tai Tonga) 
: 
 I rise to take a very brief call on the Student Loan Scheme (Repayment Bonus) Amendment Bill. The issue of student loan repayment is a very significant one facing the nation. It is a collective challenge as the mountain of debt is threatened to grow by $15 billion by 2014. But as other speakers have pointed out it is not just the quantum of the debt that concerns us; it is the huge impact on students and their families. An estimated 120000 holders of student loans are in arrears or are failing to make repayments. 
We have a particular concern for the future of Maori students. The evidence tells us that more Maori have a student loan debt than any other group although the level of debt held is similar to other groups. Five years after study Maori students are also less likely to have made progress towards repayment of their student loans than non-Maori students. In a study undertaken by R Jefferies for Te Puni Kokiri in 1997 he concluded that the increasing participation in the student loan system by Maori students reflects the necessity that for many Maori the student loan scheme provides the financial support that is necessary to participate in higher education. So there are many complex issues which in and by themselves need to be addressed not just the issues of this bill related to student loan debt. 
There is the core issue about why Maori have the lowest post-study incomes and repay their loans more slowly than other groups. The annual report from Te Tahuhu o te Matauranga 3 years ago tells that Maori certificate-level students carry a larger student loan debt 5 years after study reflecting notably lower earnings. Maori with bachelor’s degrees or post-graduate qualifications also had notably higher average leaving loan balances than non-Maori. 
We will support this bill at the third reading as we know that the current student loan debt is capable of impairing the long-term financial base and self-confidence of young students. We must do everything we can to protect their interests and safeguard their futures. However I want to leave with a couple of comments that I have drawn from the excellent submissions of students from within my rohe of Te Tai Tonga from my home town the students association of Nelson Marlborough Institute of Technology. They told the Education and Science Committee that the bill is just a band-aid solution; only those graduates who can afford to pay $500 above compulsory payments will benefit; living costs are rising from recession; the bill does nothing to address the initial cost of tertiary education in the first place; and if education was affordable the Government would not have to propose such measures in the first place. 
Although I agree with the previous speakers that we must incentivise New Zealanders to pay off debt as fast as they can I do not think we can overlook the systemic issues that this students association has brought to the House. We would hope that further legislation to affect these issues will also come before the House as a matter of urgency in the direct future. 
ALLAN PEACHEY (National—Tamaki) 
: 
 The contribution of the Green member Russel Norman to this debate on the Student Loan Scheme (Repayment Bonus) Amendment Bill is probably not worthy of comment but I need to say one thing: it must be nice to be in a situation where he can stand in this Chamber spend taxpayers’ money as if there was no tomorrow and know that he will never have to take responsibility for it because he will never be in Government. I wonder about all those New Zealanders who do not get to go to university all of those young people who leave school at 15 and go into the workforce and who are taxed from the moment they start work. They will never be able to aspire to the sort of income that graduates will be able to aspire to. All that the Green member’s contribution brought home to me was that his party represents narrow selfish and sectional interests. Thank heavens for the sake of the taxpayer that party will never be in a position to spend taxpayers’ money! 
The debate has been very interesting and I am gratified that Labour finally came to its senses and saw that in actual fact it had no choice but to accept this bill. It had no choice. There is a critical date in all of this: 1 April 2006. This legislation really has its beginnings at that point. That was the point when student loans became interest-free. From that time there has been a downward trend in the repayment of student loans. This bill is designed to adjust that balance. The most important word that has been used in this debate is “incentivise”. This relates to an effort by the Government—supported I am pleased to say by Labour—to incentivise students to repay their loans sooner. 
It was interesting as the debate progressed to see naive young members like Mr Nash stand up and lecture people like myself on financial literacy. I tell Mr Nash that people of my generation knew that their first obligation was to pay off their debt. That is financial literacy. For that member and others to suggest in this Chamber that there are better uses of taxpayers’ money that has been loaned to people than for those people to pay off their debt is I suggest financial illiteracy of the worst type. I have to ask whether Mr Nash and some of his other colleagues—one-term MPs is all they will ever be—have ever thought about the risk of putting money into places like finance companies or Auckland apartments. I issue a caution to all borrowers who listen to the health warning to be very very careful where they put their money. They should not listen to the financial illiterates in the Labour Party. They do not know a lot. It sounded good but they do not know a lot. 
The one message has to be that the best thing people can do—the key to their financial future—is to pay off debt as quickly as they possibly can. Let us imagine what a tragedy it would be if young person who had the opportunity to pay off part of their debt early put their money into some high-flying investment and then lost it. Do I need to remind Labour members of what happened in that party’s last years in Government? How many New Zealanders are now seriously financially disadvantaged because they did not pay off debt? 
Debate interrupted. 
Sitting suspended from 1 p.m. to 2 p.m.