Hutchison Paul: Student Loan Scheme Amendment Bill (No 2) — Second Reading 
Hutchison Paul: Student Loan Scheme Amendment Bill (No 2) — Second Reading 
[Volume:638;Page:8154] 
Dr PAUL HUTCHISON (National—Port Waikato) 
:  
Thank you for the opportunity to speak on the Student Loan Scheme Amendment Bill (No 2). National will support this bill because it aims to help student loan borrowers living overseas to return to New Zealand and it simplifies the system. There is certainly a lot to be done to simplify the system of bureaucracy that the Labour Government has created over the last 7 years. 
The Labour Government undoubtedly made the student loan scheme even more complex when it brought in its $1.5 billion a year interest-free student loan scheme and by doing so it provided an incentive for borrowers living overseas not to let the Inland Revenue Department know that they were out of the country. In fact it was a revelation to everybody including the Labour Government that there were probably 40000 borrowers living out of the country. I hear Mr Donnelly saying that 40000 was the number estimated by the Inland Revenue Department. It is quite remarkable that Dr Cullen and Labour did not think about the complexities at the time of bringing in this interest-free loan scheme—or maybe they did but they just did not care. They love complexity and in many ways this bill is about unravelling that complexity that they have brought in. 
Further scaring the Inland Revenue Department is the fact that it has a computer system that was started off in 1992 and I understand that the computer system is breaking into a bit of a cold sweat as it has to deal with the complexity of unravelling this bill let alone the Working for Families package the new international tax regulations and shortly the KiwiSaver scheme. The computer system will be under severe strain and I believe that one of the department’s officials pretty well admitted to the Education and Science Committee at the time that the capacity of the computer system would indeed be stretched if not highly rattled. 
The Labour Government is prone to creating complex and bureaucratic systems. Students come to me and ask why they can have an interest-free student loan but have to pay interest on it that is then paid back to them. One does wonder how one creates this sort of thing and one can only think that the Labour Government wants to make it harder. It wants to increase the bureaucracy because there is no other way for people to get jobs etc. 
I was not fortunate enough to be on the select committee at the time but I understand that something like 15 submissions were received on the bill and that indeed most of them supported the intent of the bill as we do in National. But it is worthwhile spending just a little bit of time looking at the submission from Business New Zealand as to why it was concerned about some aspects of this bill. I think everybody was in agreement with the data matching. There is no doubt that when we have something like 40000 students going overseas it is remarkably concerning. The Inland Revenue Department has made an estimation of how much could be saved by making sure that data matching occurs and I think it goes up to about $24 million a year. In fact the department estimated that data matching by reducing the number of incorrect interest write-offs would save $9 million in the 2007-08 fiscal year rising to $24 million per annum in the 2009-10 and out-years. 
But that figure does not compare to anywhere near the 100 percent write-off cost of the student loan scheme at $1.5 billion a year. It is important that we take note of the OECD report on the tertiary education system in New Zealand that queried whether the Labour Government had its priorities right in terms of introducing this 100 percent write-off at all. But the scheme is here and it has created considerable complexities. The data-matching aspect of this bill is worthwhile and I think every submitter was in agreement with that. 
The repayment holiday provision is another issue and there is some worry there. I note the comment that public and Government attention has tended to focus on the student loan scheme as a cause of long-term emigration by skilled New Zealanders yet the evidence to support this assumption is actually pretty light. The most detailed analysis of the role that student loans play in encouraging overseas travel was in the Ministry of Education’s 2006 report  
Do student loans drive people overseas—what is the evidence? 
 but the report noted that the scale of the linkages even though the loan balance is a statistically significant factor is not clear and that its findings should be viewed with caution. 
The report goes on to state that the causes of permanent and long-term departures from New Zealand are still not very well understood although the ministry’s suspicion is that higher wages and a wider range of career opportunities offshore are key factors in the decision to move overseas. This is a very important point because when this Labour Government came to power in 1999 the average wage for the Australian worker was 22 percent better than that of the New Zealander. Seven years after the Labour Government took power the average wage for the Australian worker is 35 percent better than the average wage for the New Zealander. That is an indictment on the Labour Government. Clearly it is one of the reasons that we have this problem of a million New Zealanders being offshore. In fact compared with the number of Australian post-graduates 10 times as many New Zealand post-graduates live and work offshore. That has to be an indictment on this Labour Government. 
The Business New Zealand submission further states: “depending on the size of an individual’s loan and his or her income the establishment of a repayment holiday for non-resident student loan borrowers could actually create incentives to leave the country.” I think it is important to be aware that that actually is a reality. The concept of a repayment holiday raises fundamental questions of fairness. Why should borrowers who have left the country effectively be rewarded when those who stay in New Zealand meet their repayment obligations and make an economic contribution to the country are not? 
I look to Singapore quite often. It has recently created a system whereby $1 billion has been spent on young elite scientists for them to go overseas to some of the best universities in the world and then return home. Singapore does it by bonding them. There is about $1 million per scientist and if they do not pay it back the Government will certainly chase them to the ends of the earth or maybe bring out the rotan rod. Obviously that is not something we would do in this country but in many respects the Labour Government is bringing in some perverse incentives. 
The second issue is that of repayment obligations for non-resident borrowers. The bill proposes to introduce new repayment rules for non-resident borrowers. It seems extraordinary that the current rules are designed to ensure that loans are repaid in 15 years and require borrowers to pay off 1/15th of their principal each year whereas with this system it will become much more complex. Again it is an example of the Labour Government’s contortions in order to try to fix up a problem it created at the start. In fact in terms of reducing the obligation the reduction varies from 40 percent to 18 percent depending on how much has been borrowed. So there certainly is no consistency within that aspect of the repayment obligations for non-resident borrowers. When one thinks that in this country something like 47 percent of our tertiary education and university students have either opted out or not completed their bachelor degrees within 5 years one realises that that is of considerable worry when we are expending so much on tertiary education.