English Bill: Student Loan Scheme Amendment Bill (No 2) — First Reading 
English Bill: Student Loan Scheme Amendment Bill (No 2) — First Reading 
[Volume:635;Page:6591] 
Hon BILL ENGLISH (National—Clutha-Southland) 
: 
 National will support the passage of this bill at least for it to go to the select committee because it is an attempt to get to grips with a very complex and difficult administrative policy relating to interest-free student loans. This bill highlights the major problems that the Inland Revenue Department has had in applying any kind of consistency or fairness to borrowers who are resident overseas. I would be among many people who were alarmed to find that 40000 borrowers have apparently got lost. I am still slightly confused about what presumptions the Inland Revenue Department was making about those 40000 people who were not making repayments. Was the department assuming that those 40000 students were overseas when they were in fact here? 
Hon Brian Donnelly 
: Or the other way around. 
Hon BILL ENGLISH 
: Or was it the other way around—they were assumed to be here when in fact they were overseas—which tells us there are some very large holes in the system. I would like to make it clear to the Government and to the Inland Revenue Department that we sympathise somewhat with their predicament. The department has a computer system that I can recall being implemented—I think almost 15 years ago now—and fundamentally it has not altered. In that time it has had to take on family tax credits and Working for Families; the student loan scheme of course and all the changes to it which have been virtually every year; changes now in international tax; and probably the granddaddy of them all KiwiSaver. I will be interested to find out at the select committee whether these changes are dictated as much by the need to take some pressure off the Inland Revenue Department’s computer system by simplifying the system or whether further change will put so much pressure on the Inland Revenue Department that in fact it will need to make some fundamental changes or upgrades to its ability to administer student loans. Of course such an upgrade would no doubt lead to significant changes for all the other systems it has to administer. 
I spend a good a deal of time as an MP explaining to constituents that students who are getting an interest-free loan have to be charged interest and then have to have it written off. The fact that that is the process students have to go through tells me that the policy has moved well ahead of the administrative capacity to deliver. In behind that of course is a fundamental unfairness. This bill will extend the amnesty for a year. One of the reasons for extending that amnesty which the Government has not publicly stated is that only a couple of hundred borrowers have taken advantage of it in the first 3 months when there are evidently tens of thousands of people out there who have not been meeting their obligations. So the extension of the amnesty is necessary if only to give a long enough time for borrowers to understand it to realise they will be nabbed by the data match—which we support—and then to have time to work through with the Inland Revenue Department just what the effects of the amnesty are on them individually. 
Students will of course want to know individually what the effects will be. But the fact is that a significant number of students have always met their obligations on the way through and the Government needs to be very careful that the provision of this generous and lengthy amnesty will not undermine the perception of fairness among all those students. I accept that no doubt the Minister would argue that the amnesty is an amnesty only on penalties and that all the other obligations have to be met by the student. 
I will also be testing in the select committee the Government’s argument for that amnesty in respect of its incentive effect on borrowers going overseas. Much has been made of this in the political debate—the idea that every young person in New Zealand feels compelled because he or she has a student loan to head off to a stronger currency zone earn big money and pay off the loan and New Zealand is worse off for it. In fact the annual report on the student loan scheme shows that that is largely greatly exaggerated. At the scheme’s peak something like 8 or 9 percent of borrowers from any given year left and some of the figuring that I have done shows for instance that of those who left between 1996 and 1998 70 percent of them had returned by June 2006—and that was before any of these changes. 
So the idea that paying interest on one’s loan overseas and not paying it on one’s loan at home will have some dramatic impact on the behaviour of young people was I think a political convenience at the time. It fitted the public mood; it was a way of limiting the fiscal cost of a very expensive promise; but young people I am pleased to say are not as easily subject to the manipulations of adults and public policy as that. They will head off they will discover the world but the vast majority of them will come back to their homes and that is a good thing. 
As I have signalled at the select committee deliberation National will be testing particularly the capacity of the Inland Revenue Department to deliver on this. It is not necessarily part of the legislation but of course the legislation is only credible if the Inland Revenue Department can deliver on these changes in a way that it has simply not been able to do in the past. I think it is a warning to all of us who take an interest in the administration of the revenues of the Government—which are pretty important—that we have been putting in place student loan policy at least that cannot be effectively administered. I have not been involved in it to know whether officials assured ministers at the time—well they certainly did when I was Minister of Revenue—that they could administer it. But clearly those assurances have not been borne out and that warrants the select committee having a good hard look at it this time around. 
So this bill represents a number of steps in the right direction because it simplifies the administration of the policy and it brings in a data match that is long overdue. I wonder why National as a party actually did not put more pressure on this issue sooner. We will facilitate the passage of the bill to go to the select committee.