Dunne Peter: Student Loan Scheme Bill — First Reading 
Dunne Peter: Student Loan Scheme Bill — First Reading 
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Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Student Loan Scheme Bill be now read a first time. 
 At the appropriate time I will move that the bill be referred to the Finance and Expenditure Committee. 
This bill represents one of the most fundamental reforms of the student loan scheme since its implementation in 1992. The changes contained in the bill follow two closely linked elements. The first which forms the primary purpose of the bill is to make it easier for borrowers to manage their loans and pay back what they owe and to encourage earlier repayment. This will be facilitated by the second element in this bill which allows borrowers to have all their loan details in one place and for both borrowers and the Inland Revenue Department to communicate electronically with each other. Together these reforms will help simplify the way that the scheme’s 560000 borrowers manage their loans and will help the Government to better manage this $10.3 billion Crown asset. 
Currently the administration of the scheme is complex with several agencies administering different parts of the scheme. This means that borrowers must deal with different administrators regarding their loan which can make it difficult for people to have a clear view of their overall loan position and their immediate obligations. These problems are compounded because the Inland Revenue Department currently collects student payments on a system that was originally designed for the collection of tax. The system relies on largely paper-based communication. It is complex and inflexible. That adds to the challenges of maintaining communications with borrowers who by their nature tend to be highly mobile as they either progress through their careers or go overseas to gain further experience. 
The process of annual assessments for determining borrowers’ loan repayments also results in a complicated annual interaction with borrowers and generates compliance and administrative costs for both parties. This bill introduces a suite of measures designed to address these problems. The first of these measures paves the way for all loan information to be provided electronically to borrowers by the Inland Revenue Department and at the same time it will allow those borrowers to access and manage their loan account from anywhere in the world at any time. This move from paper-based systems towards a greater use of electronic technologies is the first part of wider reforms towards building a world-class tax administration one that supports the Government’s plans for economic growth by collecting revenue as efficiently as possible. It is based on making new technologies available to allow taxpayers a greater use of modern interactive electronic services. This will result in a lot less paperwork for the Inland Revenue Department and for taxpayers or in this particular case for student loan borrowers. 
Under the proposed changes in this bill borrowers will be able to access a consolidated view of their loan balance from April 2012 when the changes will come into effect. This means that borrowers who are currently studying will no longer have to contact two agencies for this information as they do presently. The result will be increased certainty and lower compliance costs for borrowers because of the improved quality of information made available to both borrowers and the Inland Revenue Department and the information will be provided in a format that is easier to understand. The overwhelming majority of borrowers will also benefit from a further change in the bill that will remove the current annual end-of-year assessment if their income is from salary and wages only and their income before tax is over the pay-period repayment thresholds. 
Under the provisions in the bill the Inland Revenue Department will instead consider loan repayment deductions from a borrower’s salary or wages to be correct and final for the pay period. Minor over or under-deductions will be ignored so there will be no surprise bills for those borrowers and no costly assessments and square-ups for the Inland Revenue Department to administer. The borrowers will be able to get a refund if they have significantly overpaid their pay-period obligation. Only borrowers who have income from other sources that are not required to have loan deductions made from them such as interest from investments or business income will need to file a declaration of pre-taxed income or continue to file an end-of-year tax return and make loan repayments accordingly. To make these repayments as easy as possible they will be aligned to provisional tax dates. 
Finally to encourage further borrowers to repay their loans the bill introduces changes to simplify the current penalty rules that should apply when borrowers fail to make the payments that they are required to. So we are making the penalty rules for under-payments or non-payments more closely aligned with the tax penalty rules. The late payment penalty rules will be replaced with a lesser interest rate so that penalties for non-payment or underpayment do not escalate so rapidly that borrowers perceive them as a barrier to paying off their debts. They are the main features of this bill. 
In addition the bill introduces an annual administration fee for student loans as was announced in Budget 2010. It also contains several minor policy and technical changes to clarify certain functions for the student loan scheme more generally. These include the rules on the exemptions from the requirement to be in New Zealand to qualify for an interest-free loan the rules for entering into instalment arrangements and some transitional provisions to move this legislation forward from the current Student Loan Scheme Act to the new legislation following the passage of this bill. 
Overall this is a very positive bill for everyone who is involved in the student loan scheme. It has been consulted on with a wide range of groups prior to coming before the House and I acknowledge particularly the contribution of the New Zealand Union of Students’ Associations and the other groups that have taken the opportunity to take part in the process. Therefore I have great pleasure in commending this bill to the House.