Donnelly Brian: Student Loan Scheme Amendment Bill (No 2) — Second Reading 
Donnelly Brian: Student Loan Scheme Amendment Bill (No 2) — Second Reading 
[Volume:638;Page:8161] 
Hon BRIAN DONNELLY (NZ First) 
: 
 The discussion that has taken place forces me to cast my mind back to 1997 when I was a new MP. A reasonably desperate father came to my office in Whangarei. His daughter who had been a student at Whangarei Intermediate when I was principal there and who was now 16 had been enrolled in a course at Northland Polytechnic for 6 weeks. Her boyfriend took off to England and she decided to cash up her student loan and follow him overseas. There was nothing the father could have done to prevent this from taking place. 
There seemed to be some major flaws in the system. New Zealand First discussed it with its coalition partner. That flaw was just one issue. The problem was that under the contracts legislation even though students could take out a contract for a student loan there was no obligation for them to actually pay anything back. That was the situation in place in 1997 when people enrolled in a 1-year course took out lump sums on their loans bought themselves motor cars stereos and trips overseas and were lumped with relatively high interest rates that were compounding etc. It was a dog’s breakfast. 
That was the loan scheme in place in 1996 when New Zealand First came into coalition Government with National. New Zealand First worked with National and I give great credit to the then Minister of Education Wyatt Creech who recognised that there were some serious problems and worked with both me and the then Treasurer the Rt Hon Winston Peters to make some changes. One of those changes was that a student could not take out a loan until he or she was the age of 18 unless there was parental permission. That was in line with the contracts legislation. Students could not take out lump-sum loans; they could take them out only in instalments. That stopped the incentive for people to take out loans and buy a motor car or go off overseas. 
Finally people do not realise that partial interest write-offs came through in the 1998 Budget. One of the things that surprised people about the interest-free policy that Labour put up was that it did not cost anywhere near as much as it seemed it would. The reason was three people—I was one of them—from New Zealand First and National had worked on partial interest write-offs. In other words the student loan scheme was a dog’s breakfast in 1996 but there have been continual amendments to it. 
Now students who have gone overseas have some real negatives in their understanding of the situation particularly in relation to the interest-free policy that Labour introduced after the last election. New Zealand First has long believed and long stated that the very best immigrant is a New Zealander returning home and we stand by that particular policy. Unfortunately the situation that exists has created a lot of disincentives for some of our brightest and best to come home and bring up their children to become fully fledged New Zealanders in the same geographical area where their grandparents live who could add to the upbringing of those children. Students have gone overseas believing in many cases that they do not actually have to make any repayments. Unfortunately not only is there interest accruing but also there are penalties. After 3 years when these students decide to come back they look at their student loan and oops-a-daisy it is massive. They are saying: “How can I go back to New Zealand on the sort of salary I will get there and be able to repay that loan?”. 
This really has been exacerbated by Labour’s interest-free policy in the sense that people believed that it applied to them if they went overseas. It was not made clear that it applied only to people who remained in New Zealand. Those who went overseas had a requirement to pay back one-fifteenth of their loan and if they did not pay it back then—guess what—they got lumbered with all the penalties. 
The Student Loan Scheme Amendment Bill (No 2) which New Zealand First believes is very sensible legislation cuts through many of those particular issues. It cuts through them by providing that holiday. Let us make it very clear: if people go offshore and work in England for 3 years they still have to pay interest on their loan; the interest will still accrue. But there is a recognition that in many cases students who go overseas might be fruit picking. They will not have enough money to pay back one-fifteenth of the loan. The legislation states that these students do not have to make any repayments during that holiday period. The interest will accrue—certainly when they come back they will owe the Inland Revenue Department more than when they left—but in fact the penalties the punitive part of the thing will not be added on to it. There will therefore be incentives for them to return. We believe that is a very sensible approach to the dilemma that the country is facing. 
I thank the Education and Science Committee because it approached this legislation in a very sensible way looking at how we could make things better for New Zealand rather than playing party politics with the issue. It was a very good select committee to work on. 
I had some trepidation because this is an Inland Revenue Department bill. I think—in my time anyhow—that this was the first time the Inland Revenue Department had presented a bill to the Education and Science Committee. I have spent a period of time in the Finance and Expenditure Committee. I remember we had a tax bill that was 200 pages long and full of complicated equations etc. I tell members here and now that I could not understand anything past the title. It was with some trepidation that the Education and Science Committee had the Inland Revenue Department coming to us. 
I must mention that in the particular case of the bill with the hundreds and hundreds of equations Michael Cullen had missed the fact that one equation had a minus sign rather than a plus; he was totally mortified that he had missed that it was a minus rather than a plus. As I said I could not understand the equations anyhow. 
In reality I believe that the officials helped the Education and Science Committee very very well in understanding the issues behind this bill. The committee members themselves approached it from the point of view of how we could make this legislation as good as we possibly could. 
Part of the legislation is data matching between the Customs Service and the Inland Revenue Department. That is really critical because as was mentioned it is estimated that something like 41000 borrowers have gone overseas and no one knows that they have gone. The Inland Revenue Department is still treating them as residents in New Zealand and giving them interest-free loans. It is considered that $143 million has been taken from the revenue base because of that. That is a lot of funding that could be used for educational purposes elsewhere. So data matching is really important and I think most people in the select committee agreed to it with the protections that were explained to us. Let us face it the select committee members asked what protections were in there to ensure that things are not misused. 
The first of the two areas that the select committee made changes to as a result of its discussions was a change in the definition of charitable activity to bring it in line with other definitions etc. Essentially if I go overseas as part of a religious organisation purely and simply to proselytise and get more people into that religion that is not considered to be a charitable activity and therefore I cannot claim that status and get an interest-free loan. However when I worked in Rarotonga there was a Seventh-Day Adventist school along the road from us. People would come up and in 6 weeks a whole hall would be built. Those people were not there to proselytise; they were there to develop educational purposes. In those circumstances somebody who was there for 6 months or a year would be considered to be there for a charitable purpose. The other area we made changes to was the way that the Inland Revenue Department would apply care and management provisions. 
 I have mentioned the select committee and I think its members acted extremely well. I thank the officials; I was extremely impressed with the clarity of the information they gave to us. Something that impressed me most of all was that when one set of submitters got it wrong and misunderstood the legislation—it could have been to their detriment—the officials specifically went out of their way to meet up with those people to explain what the legislation meant. I take my hat off to the officials for doing that. 
Finally I congratulate Peter Dunne because this is very good legislation that will improve the operation of our student loan scheme.