By Benje Patterson*
Inflation, slow repayments, and bad debts have led to $5.5 billion worth of write-downs to the carrying value of outstanding student loan debt in the Government’s books.
This is an open letter to Finance Minister Bill English, requesting that Mr English tightens student loan repayment criteria in order to minimise the costs of parasitic behaviour by graduates who exploit current repayment regulations.
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“Dear Bill,
Could you please take a look at the student loan scheme when you prepare your next budget?
I realise that your 2015 surplus target is looking increasingly out of reach, but I have a suggestion to help you get back there sustainably.
New Zealand’s student loan borrowers are a parasite on the Government’s books, and a quick glance at the state of the Government’s balance sheet shows these parasites are in plague proportions.
Solving this plague will definitely improve your chances of returning to surplus sustainably over the medium-term.
Despite education being an investment in oneself, as evident by the higher average earnings of tertiary graduates, the Government seems content with continuing to subsidise graduates even once they have embarked on a successful professional career.
The lack of any interest charges on student loans for people who remain New Zealand-based means that the Government largely pays for the cost of graduates’ outstanding debt.
Furthermore, these costs are compounded by the fact that the Government only expects minimal debt repayments once a certain income threshold has been exceeded.
The lack of interest leads to a twisted incentive for graduates – where making a voluntary repayment on non-interest bearing student loan balances is irrational compared to the alternative of banking surplus cash flows and earning investment returns.
And this twisted incentive is something I know very well. Ever since my student days I have been exploiting this loophole, with interest earned being put towards wonderfully selfish indulgences, such as travel and booze.
This behaviour is not exactly a free lunch though and is actually very costly to society due to the fact that the Government is picking up the interest tab on ever dollar I delay returning. In other words, my rational individualistic behaviour leads to a sup-optimal outcome for society.
Now that you know all this you probably think I am a hypocrite, and the funny thing is, I couldn’t agree more – I am very hypocritical. But that is where the crux of the problem lies.
And as a practicing economist, theory tells me the only reasonable way to solve this dilemma is to demand government intervention that ties my hands and protects society from people like me.
So here it is. This is my cry for help. Please help me Bill.
I am requesting that you devise a cunning plan to force me to repay all that student loan money the Government started giving me a decade ago. I don’t really need the loan anymore, but I am selfishly keeping it and earning interest on money that I could have given back to you.
My actions, and those of my peers, contributed to the $642 million negative impact which the student loan scheme had on the Government’s bottom line during the past fiscal year.
If you can speed up my repayments, maybe you could reduce this expense and get back to surplus like you keep promising.
I know that you inherited the student loan problem from your predecessor, and have already tinkered around the edges, but it’s time to take the bull by the horns and confront the issue head on.
Even though both you and I know that the best strategy would simply be to make loan balances interest bearing once more, that is probably politically unpalatable at this stage. Just imagine the whining from all those Wellington yo-pros having to pay interest on their student loans, as well as their mortgages and credit cards – that would give me a headache.
So Bill, what I am proposing is some kind of middle ground. Something that will start clawing back some of the costs, but in a way that doesn’t rock the boat too much. To achieve this goal, I suggest you tinker with the regulations governing compulsory repayments.
At present, graduates must put 12% of their income in excess of a $19,084 pa towards student loan repayments. From this, I deduce that the Government thinks people must earn at least $19,084 pa before they have the financial means to make repayments. If this is the case, then why don’t you take this logic a step further and say that at higher income levels, people have the means to apply an even larger proportion of their income to student loan repayments.
What I am getting at is that I think you should introduce a system of progressive marginal student loan repayment rates, which force graduates to repay student loan money quicker. For example, you could continue to employ a 12% repayment rate for earnings up to $50,000 pa, but then once a graduate hits $50,000 pa they could be subjected to a 16% repayment rate for marginal income above that threshold. This repayment rate could be lifted to say 20% for marginal earnings over $80,000 pa.
I know some people will claim that lifting the loan repayment rates is like a tax, but frankly that is rubbish. Paying off your student loan is paying down debt, so it is net wealth enhancing to the individual.
Even if you could just make my peers and I pay back our loans on average one year quicker, then that could be worth $400 million in finance savings to the Government (based on a $14.2 billion nominal value of outstanding debt and an effective interest rate from the Treasury of 7.1% pa).
Imagine what you could do with all that money. With $400 million you could build a nice hospital in one of the regions, or fund a lot of programmes for those more vulnerable and less fortunate than me. That would be a pretty good outcome for reducing the parasitic behaviour of myself and fellow graduates.
I hope that you consider my suggestion. I am more than happy to meet up one day to discuss the details. As a fellow Southland lad, I suggest the appropriate setting for this would be kicking up our feet with an ice cold Speights.
Cheers,
Benje”
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Benje Patterson is an economist at Infometrics. You can contact him here »
126 Comments
requesting that Mr English tightens student loan repayment criteria in order to minimise the costs of parasitic behaviour by graduates who exploit current repayment regulations.
What about the parasitic universities? Who soon will be asking for a Taxpayer bailout.
http://www.radionz.co.nz/news/national/222341/auckland-university-vice-…
What we should do is fire %10 of the overpaid Civil servants and follow their progess in the private sector. This way we could find out what the free market values their skill set at and set govt salaries accordingly.
How much do ‘Taxpayer subsidized Student loans’ skew the market.
If the student’s ability to pay is subsidized, then surely the provider’s incentive to be efficient is reduced. This must also reduce the student’s carefulness in selecting and completing a course with good job prospects in the future.
I’m sure these things can also be achieved in conjunction with taxpayer support but currently, it does seem that some courses are drawn out, expensive and/or, produce people with skills and qualification of little benefit to NZ’s economy.
Spot on Andrew Not only should the repayment be more realistic, but when starting work it should be an absolute priority to pay back as fast as possible so it is again available for use by others. Personally I am actually totaly against the student loan scheme simply because it is too easy and because it introduces debt-thinking in our young people at way too young age to handle it. Also in the wrong form but that is another subject.
As for your civil servant comments, it should be 90%. If we are not carefull not only as a nation but as the whole western world, we could be on the cusp of collapse. History repeats and repeats because we are so unwilling to learn or listen to the generations before us. You do not even have to look back too far to see the imbalance of heavy-handed beaurocracy over the producers of a nation when it becomes so un-balanced as we see it today. Generally when a nations productiveness becomes hampered by paperwork, that it becomes impossible to be efficient anymore, it is normally a sign of impending collapse.
That is what happens when the unproductive control and dictate the productive. So N.Z. be warned and be watchfull !! Ka Kite Ano
but presumably it would be Ok if a youngster with a plan to start a business and make money?
Ah show your true colours, complete with mumbo jumbo....the libertarians coming out.
"impending collapse" is due to pending peak oil ie no more cheap energy, so the impertitive of growth cant be anymore.
If you are truely interested in the collapse of civilisation Joseph Tainter is about the best to watch.
Is this what some people think? Seriously.
It's not like new grads are contending with record house prices, poorer job prospects and an increased cost of living compared to previous generations. I guess there just aren't enough financial headwinds already for the young before they start living the 'kiwi dream' and purchase an 'affordable' $500,000 house.
I wonder what this 'economist' thinks about superannuation. He must be pushing for some MAJOR cuts to super if he feels this strongly about the student loan scheme and affordable education!
Don't worry, they won't be buying one! They'll probably struggle to on over the next decade before scraping enough for a deposit and then entering debt servitude for life.
In the mean-time, I'm sure most of them gratefully rent from beneficent 'property investors', as will more and more young New Zealanders no doubt in the (brighter) future.
I'm a graduate of the University of Auckland who has recently turned 24.
I don't understand what most of this fuss about houses being unaffordable for fresh graduates is about.
A hypothetical student:
Tutors 10 hrs a week for $20/hour for 40 weeks per year ( $8,000 pa)
Works 30 hrs a week for 12 weeks per year at $17/hour ~ less 20% tax for easy math ($4,900 pa)
Saves $7,500 per year in student loan living costs (by living at home with parents)
Saves $1,000 per year in student loan course related costs
Gets fees paid by student loan
Spends 1,400 per year on travel / stationary
This results in $20,000 of "Savings" per year which all gets put into kiwisaver (agressive fund with about 12% pa returns ~ based on last 5 years with ANZ)
After 3 years this hypothetical student has saved $60,000, gotten $1,500 in member tax credit and $10,000 in "returns" ( easy math number cause I can't be bothered looking up what the actual return amount was). Include the $5,000 kiwisaver first home contribution for a total of about $75,000 towards a house. (Math is approximate only, for the sake of simplicity)
With first home buyers only needing 10% (Welcome home loan), this hypothetical student can buy a first quartile house in Auckland. Rent out 2 rooms to suppliment income and the mortgage repayments become comfortable.
Imagine a pair of students doing this and then settling down together, each buying a house but both living together so that 1 house can be used for rental income.
I know at least 2 people who have done this or similar (actual value of the houses that they purchased was somewhat less than 750,000 ) and as I mentioned before I'm a recent graduate myself.
Reading the comments I get the feeling that it isn't the young complaining that houses are unaffordable but rather the middle aged.
I just bought my second property using the leverage provided by the capital gains on my original house a few weeks ago, just before my 24th birthday. like I mentioned above I know of at least 2 others who used similar startegies. I think both of them might have used term deposits instead of dumping everything into kiwisaver.
>>> Capitalism is a positive sum game.
Property is not capitalism, it is the trading of non-productive assets and depending on real estate laws of the country in question an interaction with laws in question that assign value to land.
>>> If my money was not worth the property that I buy then no one would sell property to me.
That doesn't mean anything, you could say the same about tulips or South Sea shares.
>>> The vendor clearly preferred money over land and I prefer land over money so we are both better of than when we started (positive sum).
That's not what positive sum means. In your transaction nobody has added value to anything. Zero sum.
Residential property is inherently zero sum. A house has no intrinsic value beyond its ability to shelter its residents; its fundamental value is the same as a comparable villa in ancient Rome, and will not have appreciated in 2000 years from now. Land values go up according to demand and restricted supply.
This is NOT productive so is it ZERO SUM. You simply have a wealth transfer from those that did not previously own the land, to those that do.
property is most definitely capitalism.
the equity I have in an asset (solid or intangible) is traded for your time (in this case via the more liquid currency tokens). Release of equity, and gain of asset, absolutely required for fair capitialism to occur (otherwise it's fuedal baronies, with asseted rule setters, and labouring classes never able to purchase their own assets)
the positive sum is that of a win/win scenairo. the incoming capital gives a capital asset to the incoming owner, and releases equity for the existing owner. that is the value add.
Re: your comments of intrinsic value. You are incorrect. As you would find if you tried to purchase an ancient authentic villa (verrrry expensive!) land is not the value of property, location is.
I have a real counter-example.
My brother, due to us not coming from a well-off family, graduated after 5 years (architecture) with 50k of student loan debt. None of this was spent on anything but course and course related costs.
He paid for accomodation from allowance + working part time. Living at home not an option (parents live in the regions).
His rich mate, from millionaire parents, also qualified for student allowances due to his parents' careful structuring of tax affairs. He partied every weekend, but he was the one who graduated with 60k in savings, due to socking away the student allowance into a high interest savings account.
Who's the parasite?
Any real student who takes the allowance and financial support, is typically not going to be able to save 20k a year, get real.
Just because some can 'afford' something that has inflated beyond its real cost doesn't mean it is affordable or that the situation is ok.
In the 1840s corn (grain) was inflated beyond its real cost in Britain because their was a law preventing competition from abroad. This allowed the local aristocrats -the rentiers to charge what was effectively a 'tax' on newly productive workers of the industrial revolution, taking up to 50% of their income in food expenses.
There was successful campaign against the Corn Laws led by the early industrialists such as Cobden with the assistance of trade unions in places like Sheffield. Many in the middle classes the bourgeoisie stood to oneside because they aspired to be rentiers not entrepreneurs or productive workers.
Sadr001 what do you aspire to be?
I aspire to achieve financial independance (not needing a job) before I'm too old. This will allow me to develop software that I'm truly passionate about without having to worry about finances all the time.
The software that I'm attempting to develop is a heuristic system for medical diagnostics that will help to lower the cost of medical treatment for everyone. Before I can build this ( or while I build this in my spare time ) I need to build a financial safety net.
Hopefully your university education taught you to think critically, although I sincerely doubt that. But hopefully you realise that your financial independence isn't that at all, you are simply reliant on others to work while you don't.
Perhaps you can justify this when you develop this miracle piece of virtual wealth, but why couldn't someone in India develop it at 10% of the cost that you can?
They could potentially, but if I simply wait for someone else to develop all the technical advances of this generation then of what use am I to humanity?
The code I'm writing isn't miraculous. It is quite definitely incremental. The biggest problem at the moment is developing a large enough data set from which to derive consistent and accurate results. This is something that simply takes time and effort (virtues that people seem to lack these days) As I'm developing on my own at my own leisure the cost to me is basically nothing. (Especially given that I enjoy cutting good code)
FYI capitalism is a positive sum game. If my money was not worth the property that I buy then no one would sell property to me. The vendor clearly preferred money over land and I prefer land over money so we are both better of than when we started (positive sum). My tenants obviously believe the rent they pay me to be worth the property that I offer or they would rent somewhere else (they could pay half as much to rent in Taupo). This means that we are also both better off. once again positive sum (or win/win).
The only way to change the game from positive sum to zero or negative sum would be to coerce one or both parties into the transaction. Queues tend to form whenever my property goes on the market for rent, I certainly don't force anyone to rent from me.
I am here to learn and as such would very much appreciate your rational behind believing that capitalism is zero sum. By definition in a zero sum game there would be little to no transactions because the energy expanded by both parties to engage in the trade would make the overall result negative for both parties.
I studied computer science specializing in logic and computability, as such I believe that rational arguements will be well recieved.
Firstly we don't have capitalism, we have creditism. We expect the future to pay the paper claims we are making on it when we issue debt. Richard Duncan is probably one of the better ones at explaining creditism and there are some videos on youtube of him.
Wealth is created when somebody makes something. Unless you are making something you don't produce wealth and rely on someone else to produce your basic daily needs.
When you have interest on a money supply you have to keep increasing wealth to pay the interest. The capital gains in housing are an expression of this interest. This leads to exponential growth, watch this series of videos and tell me housing can keep increasing in price forever. You like logic, then let a physics professor explain this to you: https://www.youtube.com/watch?v=F-QA2rkpBSY
The term unearned income is quite easy to understand and wikipedia has a good page on the issue.
If no one found that those paper claims held more value to them than something else does then no one would buy debt and debt wouldn't exist.
Houses can increase in price forever because we have this thing called inflation that increases the total amount of money in circulation. In the absence of other factors house prices would go up with inflation. Other factors however cause the value of the property to grow at a rate that is higher than inflation; this is called demand and indicates absolute value independently of "money".
Offering a house at a location is no different from running a hotel (in some senses) by making the property available for the exclusive use of a resident you are offering them a service. Someone built the house and exchanged it for money because to both those parties what they got was worth more than what they gave (positive sum ). The purchaser then exchanged the house for money because the money being offered was worth more to him than the house (positive sum again), every transaction results in 2 parties who are both better off in their own eyes than when they started or no trade would have occurred.
The limit to the value of a property in terms of money (which is abstract) is infinite as the value of money approaches 0. This effectively means that the monetary cost of anything can continue to inflate ad infinitum as the value of money approaches 0.
By your reasoning anyone offering a service is essentially consuming wealth but not producing it. Teachers don't make anything but they offer a service that is of value to someone, therefore that person pays those teachers according to their value.
Employees perform a service for their employers, they may not make anything but they get paid because their service has a value regardless.
I'm unfortunately not the sharpest knife in the drawer please elaborate as to how it is that Dr Bartlett allegedly supports your position? If anything I believe that he simply affirms my position (see abstraction and limits above). Limits are a standard mathematical concept that you can google if you don't already understand them.
A classic example of property prices increasing rapidly relative to money is Zimbabwe’s money printing induced super inflation.
Oh dear, and If you had watch more than the first video you wouldn't be asking that. When you are past the oil part, at a minimum, then reconsider the rest of your comments. Understand that oil underwrited all wealth generating activity, particularly food production.
That hydrocarbons are required for an economy is a very dated sentiment; even my car doesn't use petroleum anymore. You will need to substitute energy wherever the good doctor references oil. Energy cannot be created or consumed it is simply converted from 1 form into another. Energy is an infinite resource. Hydrocarbons simply represented an easily accessible reserve of energy that people discovered early in our development.
No one sensible cares much about petroleum anymore, it is a dated technology that has legacy uses and will retain some value while modern technologies gain prevalence.
Everything in existence is either mass or energy, neither of these things can be created they are both simply converted from 1 state into another. While we are currently limited by various factors we will never run out of the basic building blocks. The cost to convert energy and mass into usable forms may increase but the total amount of both will always remain unchanged.
No one sensible? A sensible person would not use a fallacious statement like that.
Tell me then why the human species is predicably following the "Senca Effect". The world population is going to peak within a generation and then decline to about 1 Billion over the next. This will happen despite your theories, just like it has been happening for the last 50 years. Finance and economics are a confidence trick but the numbers don't lie.
It seems you dont' really understand energy density either.
You are correct; my understanding of energy density is simply that we are constantly developing materials capable of holding greater and greater densities of energy. Graphene / lithium ion, etc.
A gallon of petroleum for example has marginally less energy than a kilogram of hydrogen ( a core component of water which covers most of our planet ), both can be compressed to occupy roughly the same amount of space and as such can have the same energy density.
edit: Apparently hydrogen is more compressible because it has smaller molecules and as such can potentially have a greater energy density.
edit: Apparently oil retains speculative value in addition to legacy value.
No, all that matters is EROEI, energy return on energy invested, put 1 unit of energy in get 100 out. just remember money is an IOU for work, or energy same thing in effect.
The thing is our world economy works on excess energy, so the break even point of that is approximately 1 in 8 out, once we get to that or go below it the world's economy cant afford to pay that bill and goes into recession. Alternatives/Replacements? well the Q is what replacements, biofuels are about 1.2 to 1 at best. Alberta tar sands under 6 to 1 (and might actually be 3 to 1 no one admits the real numbers) So the only way these work is to do a rob peter to pay paul scenario which is debt. Really then we have a lot of capital in assets whose value and returns is based on BAU, growth for ever on a finite planet . When it becomes obvious that those returns cannot be got the value of the assets will be seen as hugely over-priced, well then all hell will break loose.
Fully electric cars are comparable in price. Searching trademe for nissan leaf results in numerous listings at about 20k
http://www.trademe.co.nz/motors/used-cars/nissan/auction-818128630.htm
Now that isnt. That is a second hand imported model, 2011 and not new so pls comapre like with like. The New here price was $70k discounted to $42k. Still twice the price of the equiv petrol car, plus the battery life is typically 8 years. It is a 2011 car then the battery life is getting close 1/2 used. It will cost a lot to change, in excess of $5k NZD I believe ($8k?) and then with such a battery what is the warrantee on it? Even if its replaced this time around at the 16year old mark you will be putting in a battery 5 to 8 times the car's worth, hard to justify economically. The equiv petrol 20k car looks more like 24 years (at that point the engine has done about 220k and is shagged)
Saves me about $5,000 per year in fuel. The battery costs about 1-2 years worth of fuel to replace. 5 years (8 year warranty - 3 years used) at $5,000 per year that is a $25,000 fuel saving. If you then scrap the car you've already recovered the $22,000 you paid to buy it second hand and have $3,000 + whatever the scrap yard gives you left over.
More than likely that the battery won't die the day the warranty ends, but rather gradually lose it's ability to hold a charge over the next 2-3 years. That means 10,000 - 15,000 more in potential fuel savings.
I do about 23,000 km / year
Though again really you are an outlier in terms of use. Its like comparing a deisel car with petrol you need to do the mileage to make it pay. Like I said compare like with like.
Some back of the fag packet figures,
In terms of fuel saved you also have the extra capital to pay back,. So lets say $24k of extra capital (above 20k for a petrol car) over 5 years, at 7% (you do it on your house mortgage) makes about $30k to pay back. The extra capital and interest costs are 3.75k per year spread over 8 years. So you are net $1.25k better off, not 5k. At year 8 of course you are now $s in, all you pay for is the battery. However the car has done $184k in that time frame, so really you are starting to get into higher maintenance though that isnt huge, at year 16 however you have clocked 360kms
The more average user is I think more like 12k per year? (I do about 6k per year) so an EV doesnt seem to stack up for many/most.
Of course the neat thing is if or when we get a petrol shortage an EV owner doesnt care.
If the EV costs 24,000 and a petrol car costs 20,000 then only factor the interest on (24,000 - 20,000) $4,000 into your equation, also factor in placing all of your gas savings directly back into the cost of the car to repay it faster.
If you have 5,000 per year for your car payments in a petrol car you'd have $10,000 per year (based on my mileage) to put towards the EV. This means that you'll pay the EV off faster / pay less total for it once you factor in interest.
Might I suggest getting a fixed rate mortgage. If you bargain hard enough banks are now offering very low 5% fixed mortgages. as opposed to the 7% you mentioned above.
Every little bit helps.
again not like with like.
a) The EV is 3 years old and has depreciated from 44k new to $20k, yet you want to compare it with a new petrol car, that isnt a fair comparison. Use an 3 year old petrol car v 3 year old EV.
b) $5000 in petrol when a typical user will use $1300~1800 per year in petrol.
Not fixed, Im floating and staying so, the differential is worth it, ive saved quite a few K in 5 years. I took 7% as a typical average mortgage rate, if its HP then 13% and more is quite possible, hence 7% isnt a bad pick IMHO.
So to sum up an EV in your case probably makes sense, as long as you have a low interest rate to make it work. Iin my case and probably 75% (maybe more) of users, no.
It was my error to state oil when I meant energy.
Something I have said before on this site is that complexity is not the answer to a shortage of resources. You could go further and say that it is a logical flaw to assume it :-)
http://mcalvanyweeklycommentary.com/october-1-2014-dr-joseph-tainter-th…
Sadr001, you have missed the point about what 'affordable' should mean.
Just because you can afford to do what you are suggesting, doesn't mean you should not be concerned about what you pay.
There is no reason you should have to do most of what you have suggested to own your home.
Not that owning a house is without some sacrifice, but the question you need to ask yourself, is at what point would the burden have to be at for you (and the burden you place on others like your parents. Your 24 years old, about time you stood on your own two feet) to start questioning what you are paying is good value or not.
If you have no issue with what it costs to own a house in NZ, you will always pay too much.
http://www.nytimes.com/2014/12/15/technology/stockholms-housing-shortag…
sadr001 this is dilemma that your Swedish developer colleagues also face with regard to housing. It is admirably that you are personally finding a way through the housing Maze. But would it better if there was a more general solution for your whole generation?
Problem - Welcome Home Loans are for owner occupied properties only. You are not able to rent out rooms or use as an investment property as the hypothetical scenario suggests, especially where two people use this ability and then live together. Reality is greedy people cheat our systems/ use loopholes for their own advantage at the expense of others. Just because you can, doesn't mean you have to. Conscience? Your choice.
Yeah like Richie doesn't like to push the boundaries of rules either... It's inefficient to play too safe within the boundaries of the law while your competitors push closer to the limits. How would F1 cars go if one team decided it wanted to play safe and design there cars to be safely within the limits of the rules. Competition makes this inevitable. Are you sure you're just not too lazy to learn the rules closely and play them to your advantage.
E.g: 6 months is the min you need to live in the house for welcome home loan. You can and should rent a room (as in get a border, which is tax free for up to 2 boarders). You could even get a number of borders, live in the garage for 6 months before making it a full blown rental. It's still your first home so you're entitled to the welcome home benefits. I'd actually respect this approach as it shows real commitment to getting ahead
Thank you for that Simon.
I personally elected to file a return including my boarder income because you are allowed to apportion the interest paid to the bank based on the percentage of your home rented out. You are also allowed to apportion certain expenses and for me the result was that in my first 2 years the property ended up being negatively geared and I got tax back from the govt for my losses (difference between boarder income and expenses).
Simon, This reflects a point that I constantly examine in my models.
We can't rely on the 95% minimum efficency or outlying 0.5% to guage the effectiveness of social, financial or government policy.
There must always be inequality, because people and situations are never always equal.
So we have to decide what minimum levels we are willing to expect and see that they are acceptable - when it comes to harvesting/killing the tall poppies to make them fit inside Prorustes iron bed, and constantly subsidise the foolish and system-gamers with the same arrangement then the system will never run smoothly.
Hard work and sacrifice to get ahead is admirable and _should_ result in extra benefits. Such inequality is to be encouraged, not discouraged or penalised - it is just important that such benefits are pleasant but do not warp the system ... and that's what we're having. With a huge population such advantage quicks results in reinvestment for futher return ... if such reinvestment is in high end luxury, it is not a problem - it's is because the best return is frequently where the most of teh action is...where others are trying to get on that ladder.
Likewise at the bottom, the advantage that others have gained should not be closed off. otherwise there is a constant reinvention as the desparate and disenfranchised fight for the same crumbs. This can hardly be useful for the development of a better society.
So the system _should_ be focusing on making sure the minimums are available for each class, not trying to exact government power and profit for their egomaniacally control fantasies.
Well done for stating the obviuos . Some need reminding of what is patently obviuos to most thinking Kiwi's
Bill could easily get back to surplus by doing the following :-
1) Cap civil servants pay scales at sensible commercial levels .
2) Retrench duplication staff in the entire Public Service
3) Charge interest on Student laons after 5 years at commercial Bank Rates ( OCR PLUS 3% ) .
4) Student Loans should be for State run Insitituions ONLY from say end of 2015 for 1 year courses , and 2017 for 3 year courses to allow a wind down of this rort
We should offer laons only for proper courses at Govt instituions , not Private colleges offering useless qualifications like Horse whispering, altenative hick medicine , dog behaviour courses ( Just how many dog walkers do we need ? ) and such rubbish .
5) Immediatley put a stop to Student loans for ALL shonky colleges , for example :- selling the dream of becoming an airhostess for Air NEW ZEALAND when NOT ONE person from the college got a job last year .
Define 'sensible commercial levels'
.
Bill English, being a civil servant, earns 303,900 in salary, 16,300 in allowances, and up o 24,000 in accommodation expenses.
Do you think that is sensible?
Or would the 700,000 odd salaries of some members of AC be more what you're looking for?
I earned $20,000 in salary. worked 45 hours a week, 365 days a year. got $0 allowances, no expense recovery.
I had to invest 400k at personal risk (300 borrowed), and have to upgrade fencing and water quality systems which have no effect whatsoever on the final food quality product - these items I'm not even allowed to do minimal cost recovery on.
Other systems like the marvellous H20DTex (that this very morning saved me from another water in milk loss) are optional, do affect product quality and are entirely optional (and still not cost recoverable - but it's already paid itself off twice in last 6 months alone).
Since I'm having to sell up due to (a) Fonterra price being below breakeven (for us rent payers) and (b) increased crazy legislation, and (c) sick of sick, kicking and hard work and shitty weather, and (d) simply not enough time off.
So.. Billy Engrish, 340k, nice office, plenty free travel and holidays, no poo, no personal risk, no personal investment, pretty much guaranteed market forces (government cheques paying his wages), probably doesn't even have to process his own accounts and payroll.
vs...me, 20k, shitty weather, little free time and no holidays, cow shit and piss, 400k personal risk & interest payments, extra unrecoverable outgoings, PICA rules tying me personally to farm, high risk of food safety issues, and fully accoutable to all affected parties, processor sets all the rules for price.
gee...whats there to be annoyed about....
I say, boatman... tax all income made in property investment by 25%... Heavily tax property speculators and make all people, particullarly those with multiple properties, who received a free education pay back, at today's cost, with interest say 30% for their course and student subsidies... then with all that money make education free to everyone under 30. After all they are the ones being screwed by the "free market" property investors...
That way we'll get rid of this 'entitled' property owning class of, I'm so incredibly smart because I had life handed to me in the 50's, 60's and 70's....
Just saying....
That way we'll get rid of this 'entitled' property owning class of, I'm so incredibly smart because I had life handed to me in the 50's, 60's and 70's....
Isn't it a case that so called smartness evolved after a severe dose of social engineering from 1985 onwards?
The simple answer is that in the two decades from 1985 onwards, New Zealand had the biggest increase in income gaps of any developed country. Incomes for the richest Kiwis doubled, while those of the poorest stagnated. Middle income earners didn’t do too well, either.
Because New Zealand had previously been so egalitarian, that world-beating increase still wasn’t enough to rocket the country right to the top of the inequality league table, but it is now doing just as badly on some measures as Britain. In both countries, the top fifth get about 40% of after-tax income; the bottom fifth get just 8%. New Zealand is now just as divided as the country that many of its citizens’ ancestors left in order to find a more equal society. Read what others think of us
tax all income made in property investment by 25%
Why only 25%? If it's"income", tax it like any other income...
Not sure about ex-students having to pay for their studies retrospectively so that today's students can study for free? Watch out then - you may have to pay for your studies in 20 - 30 - 40 years time, when your kids change the rules on you again ;-)
What would work better is instead of acting like some hatefueled medieval woodcut of Hell pulling down any who try to climb about the slaving dregs...
You work on a system which would _encourage_ investments acress the board. So that there would be fair increase for all. For once, work on something that gives everyone who wants to get out of purgatory a hand up, not a beat down.
...just saying...
Wouldn't incentives work better for everyone (borrower and government alike) as opposed to compulsion?
Government calculates the annual cost of this outstanding debt to the nation (i.e., forecast write-downs + interest paid on outstanding debt by the govt) and then determine an optimum amount per annum (a break even) to be allotted to early repayment incentives. They then offer an attractive repayment incentive to borrowers - once break even is reached, no more incentives exist for that particular year. Same theory/mechanism as the airlines offer in terms of Grab-a-seat.
Boatman,
Im not sure about charging interest rates on student loans as students get out of uni with 60-80k loans and will never get on the property ladder if their student loans have interest on them, especially when students like myself take about 5 years to get into a well paying job. I think a more agressive repayment rate will work. The more you earn the bigger the repayment.
I do agree with all the other points though...
But the biggest problem with student loans are people getting into huge debt for jobless courses (point 4) I have friends with 60k-100k debt for travel and tourism courses and they have been working as receptions and in the hospitalityindustry. Get rid of all non required courses and only focus on the jobs which NZ have a shortage for, Engineers, nurses, doctors, IT etc.
We need highly skilled people in NZ and it's an investment the Govt makes in offering student loans but people need to qualify by meeting tough requirements. If you fail a semester, you have to pay 1/2 the course yourself, not through student loans....
The article and comments seem to overlook that there are huge numbers of persons getting student allowance, job seeker benefits, accomodation supplements, Residential Care subsidies, National Super (yes for you and spouse even if one is under 65yrs) and so on that never need to be paid back. So rather than parasites, the student loan borrowers are at least making repayments - ulike all other 'beneficiaries' out there.
"New Zealand’s student loan borrowers are a parasite on the Government’s books, and a quick glance at the state of the Government’s balance sheet shows these parasites are in plague proportions."
Wow.
So as opposed to completely free tert. ed you think the (relatively) small losses incurred on the govt. books due to inflation is too much for society to bear for encouraging the upskilling of the workforce so NZ companies can compete internationally and increase R&D spending to levels anywhere close to our competitor countries?
I haven't bothered reading your entire piece just yet (will do after work), but it appears you think you're clever figuring out that interest free loans essentially mean free money for students and a real cost to govt. books, and then take the giant leep to conclude that this is a 'loophole' and a major cause of govt. debt...
They have tightened things to limit access to loans e.g you must not consistently fail papers year after year and keep getting interest free loans, and older people who wont live/work long enough to pay them back have been ruled out, and now pay 12% not 10% over a fixed (and never been adjusted for inflation) income level.
I'll run you're limited thinking down more after I've read the entire peice.
I've already paid my student loan back, but since I was charged interest, was 7% if I recall, I still have to pay it back again. Really, my education due to interest, is costing me twice the actual initial loan amount. Its only now, with interest free loans that my loan principle is reducing. Most people can't afford to make higher payments, I know I can't. Not when supporting a family etc.
It is bad enough that tertiary education isn't free.
As for the comments regarding what courses, should or shouldn't be available. Who cares if people want to do a course which isn't engineering or some other 'highly valued' area. Who gets to define what is valuable to society?
Yes, and how much of your wealth would you be prepared to sacrifice for something that I or Mr Boatman think valuable, and you don't?
Because that is what is happening when taxpayers pay for the provision of degree courses whose graduates are unlikely to find high paying work. Taxpayers - including those who haven't had the benefit of tertiary education, and who find houses just as unaffordable as student loan holders do - are forced to pay for somebody else's preferences and choices.
I'm happy for my tax dollars to fund 2 tertiary degrees per person. Of those who want a tertiary education - and I don't need any justification of what kind of degree, either.
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To me, a degree does not have to be repaid by the student in monetary terms, only. There are many different ways a person can repay their debt to society. Money is just one.
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So if a person wants to get a degree in Sociology and Psychology or Philosophy, and then ends up working for a not for profit organisation like Living Without Violence - that to me would be repayment enough.
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I wouldn't need beneficiaries of my tax dollars to justify their choice of degree to me.
And I'd rather my tax dollars were spent on improving the prospects of those who currently have not the slightest chance of ever getting anywhere near the privilege of a university education, and whose chances of worthwhile employment and home ownership are many orders of magnitude less than any university graduate's.
IF they were paying for it, yes. But all NZ citizens are entitled to subsidised funding at complying stitutions. Which is yet another reasons it sets my teeth on edge when academics and degree'd people mistakenly claim farmers get government subsidisation....
That's why foreign students are charged so much and should get preferrential treatment at tertiary level.
IMO NZ citizens should get their subsidy only for the first degree, or valid retraining for commercially viable degrees after 5 years study.
the first degree, allows for non-standard opportunities to occur, and five years sets a cap on the cost to the taxpayer for interest or multiple degrees. The flagged "valid retraining" allows an option for those who end up retrenched and really do need retraining to be viable for productive employment (without opening the door for interest/hobby degrees).
As a tax payer I dont see that I should fund any and every tertiary course someone wants to do. So I think its pretty reasonable that there is a loan system but that its a low/no interest, a bit of give and take if you will. It also should not be open to abuse, and I know full well some are abusing it, ie maxing out the amount they can get out but not actually using it for its intended purpose.
If it isn't at a super low amount then it shouldn't matter what they're using it for.
Better to charge the full interest then set up a rebate incentive for certain types of work, or even rebate for unemployment/low income.
That enables freedom of choice plus allows interested parties to sponsor the needs they see.
Exactly. A lot more low lying fruit than hitting the struggling younger generation further.
Not only will the younger gen. definately be means tested for pension by the time they retire, at 70+ not 65, but they will also be paying capital gains taxes or hit with massive mortgage debt on a depreciating asset once the baby boomer land lords like Olly sell up for some golden 80s holidaying before falling off the perch
Means testing pensions is unlikely to do good and may well do active harm, once you factor in the administrative costs of finding out how much means everybody has and checking that they aren't cheating (all means testing creates incentives to cheat); the cost to the economy of the changes in behaviour that are likely to result from punishing people who work and save and rewarding people who don't; and the money that is likely to be diverted away from useful, productive purposes into paying one set of tax accountants and lawyers to work out ever more complex ways to rort the system, and another set of tax accountants and lawyers to work out how to close the loopholes that they find. All of which can clearly be seen in Australia.
The IRD is going after them, and doing very well. Currently I think the return on "investment" is in the order of 6 to 8 for every $1 "invested".
Im assuming that the current crazy housing speculation in Auckland is being watched by the IRD with great interest.
regards
Really
It seems the IRD is falling further and further behind, or
The tax evaders are forging ahead of the game
Re-read Bernard Hickeys latest two articles and his overview of the RBNZ forward statement, followed by Bill English's pronouncements
The economy is growing, growing, growing at a rapid clip - GDP is growing
Yet
Income Tax revenue receipts have fallen substantially
GST receipts are falling
Any explanation?
And who are the tax evaders VA?.........private enterprise is working its ring gear out to fund all those spending and receiving the loot............there are always those who put in effort and those who live off the efforts of others...........
Benje Patterson can play the system for an advantage by drip feeding minimum amounts or he can acknowledge the opportunity/advantage he has been given and decide not to abuse it and pay his debts down hard and fast.............and encourage others to do the same!!!
Benje is actually asking for Nanny State to step in because he is not up to the responsibility of the task.!!!..........and yet he wants to be responsible for advising Bill English......Geez..go figure!!!!
quite often people like the Benje, the only ethics they recognise is "what everyone else is doing". So if everyone else is burning cross on the lawns she'll be there to (and writing letters to the editor condemning such things to ease her conscience), or hanging out with the cool kids at the street races... but not so close in case someone tells her parents.
A LOT of these types end up in government - mouthy enough to say the right things, subservient enough to support the right people, and utterly incompetent as rational or ethical beings.
You know the ones ... complain about the situation that "someone" should say something (not them, you)... and then when you do step up to the bosses or the mob... they're nowhere to be seen....
Before the days of student loans, we paid a token proportion of the teaching cost and there was no accomodation allowance. If you did well at school you recieved a small bursary. Most students remained living at home if they were fortunate to live in a place which was served by a tertiary institution. In the last year, when you were confident of completion and coping well with the new learning environment and lifestyle, you may go flating. Those who had to move to access education, often boarded privately initially or stayed in a hall of residence and went flatting after a year or two. Accomodation costs were modest and a good holiday job with your bursary usually covered the cost. (or most of it) I was lucky and manged to live away from my home town pay my costs and even achieve some modest savings. The system seemed to work and it would be interesting see if it cost the government much more than what what is going on now.
Under the present system the accomodation suppliment forms a large part of the loan and has led to a situation where it is almost socially mandatory for students to leave home in their first year or go to another city to learn, prompted by a natural sense of adventure. All this has generated a lot of unneccessary cost for students who generally do not appreciate the signifficance of the debt that they are taking on. It has also added to the landlord/property investment movement which has greatly increased the cost of accomodation. The cynic in me would suggest that this was a motivating factor for the government, but I also am aware that the government was rattled by the revolutionary behaviour of students, so may have devised the set up as a means of taming them. And off course we mustn't over look the vote winning attraction of bribing young voters with their own future debt.
If I had my way there would be no accomodation suppliment available to students who can be educated in their own home town under the age of say 20, and if the government cannot provide that education in your home town then the accomodation suppliment would be a grant not a loan. If you want to live away from home in any other situation then this is a lifestyle choice (not one conducive to learning fresh out of school), so find the money yourself, this is not the governments responsibility. Secondly I would be a lot more selective in what courses the government funded. There is a lot of very low grade education going on that has more to do with bums on seats than anything. The folks that get sucked into this, take on a debt for a qualification that is not much use. The learning would have been far better on the job or in parrallel with a job.
this is not a root cause, more looking at the stickie on the band-aid on the heel of the...
uni fees have been just another thing to lend against
in this case the lender forgot to strap in the dealer / vendor for QC, (mind you they were off land banking at the time) rather acepting the IRD as repo man.
Why not take 100% of after tax income over $80,000, and 50% over $40,000 say. You could choose to pay less, but then be required to pay market rates on the student debt...
I had to pay 7% interest on my student loan even when studying. Just because Helen Clark bribed voters 15 years ago doesn't mean we need to give never ending freebies...
It would be interesting to know how much debt is carried by non NZ born persons. Many arrive in NZ then end up studying at our expense once they get residency. Then you have the rackets such diving schools etc and other useless courses. So many free lunches...
Okay , so lets collectively do nothing until it reaches crisis proportions.
From the commnerts we can see there are so many conflicting views on the matter we will never get consensus.
Maintaining the Status Quo is however not an option , so something will have to be done by someone with the Political will to address the issue , probably in typical Kiwi fashion , when it reaches crisis proportions .
Th fact remains , the system is being abused , and maybe not abused by everyone , but it is being abused by many , and more so by those who have the means to pay for their childs education .
Its a bit like the Physio visits which were free , it got to the point of being abused by all and sundry , including the physio's themselves .
The tertiary institutions ( esp. Private colleges) are also up to abusing the system in some cases .
.....it may be being abused, but the abuse is crystallised as a loan - thus it has a visible presence on the gummit books.
This is somehwat unfair - if we kept a ledger of all benfits paid to all citizens, this debt would be a drop in the ocean. So if you can get my point, whilst not defending SLs, the fact is the decision to measure these makes them stick out - where as the freebies do not show up on the balance sheet.
Okay Fair point , but the fact remains there is basically littl incetive to pay off sometihing that is interest free , especially when you dont have to and there is little incetive to do so .
And if you bugger off to Australia to work the debt should incur interest , becasue the NZ residents should not pay for the thousands of Kiwis in the Australain labour pool to be trained .
The Govt. should put a term on the loan ,something like study for 3 years and pay it off by year 10
No, there isn't. The proposal is very, very clearly designed to make those who do get a job and receive a decent income pay more. Those who don't get a job and receive a decent income wouldn't be affected by this proposal, but might nevertheless want to ask themselves whether they shouldn't be trying a bit harder to get into a position where they can repay the money they took - money that could have been used to help those far less privileged
For myself, who couldnt get a decent job - paying back the student loan, while trying to save for correspondence courses, while getting intermittent work (thanks to being laid off several times) was a major problem , as was being turned down for housing loans because of it "we still have to factor in your 'entire' debt load, and 'every' outgoing service payment.
Current student loan system was a strategy by Labour to buy the student vote and to keep academics well employed. Current Govt has followed status quo to keep that area of the vote happy.
Do we have to many education facilities? Are there to many campuses? Are loans to easy to access? Do they all compete against each other with advertising? Do students move overseas with their qual’s, never to return abandoning their debt? Is enforcement a toothless pile of crap…Unfortunately yes to all. This is not even allowing for the overseas students qualifying for loans, completing studies, going home and then re-entering under a different name to abandon their loan.
Summary. 100% agree with this man’s intent. Something needs to be done.
My 80 year old relative recieves the single pension,living alone allowance,lawnmowing allowance,rates discount despite the fact that he peed and puffed his money against the wall.On top of this he recieves 2.5 hours daily of home help paid by taxes and other discounts because of his/her age.
Me on the other hand am still unemployed after 4 months and recieve no assistance at all.
My sin hs been to prepare for the future by saving and investing (not in property).so unless i can get employment i will be required to empty my bank accounts to survive unlike a lot of people who put their wealth in untouchable trusts etc.
That says it all - so many folks don't realise this to be the case - that the unemeployment benefit is not universal, but instead means tested for cash assets only, of course. In other words, if you had mortgage debt .. you'd qualify for the unemployment benefit. Plain and simply, the law is an ass in this regard.
Only way out that I can see is Gareth Morgan's Guaranteed Minimum Income - no means testing for anyone and all capital assets taxed - unless they are returning a set minimium percentage return on that capital.
Completely irrelevant comparison. Retirees paid tax towards that for decades, whereas students paid bugger all if anything to "earn" a studen loan (certainly their parents probably did). The idea to means test the term of pay back is entirely logical idea, and fair to tax payers with no relevence at all to superannuation.
they built ...and used the infrastructure.
they put up hospitals and schools ...and setup their subsidised systems.
they built and ... enjoyed parks
they built theatres and visited them ... many of which they have since condemned and demolitioned.
same for railways, ferries, Parliment House etc. They have built them...and used them.
Left the next generations the growing inflated bill, and a pension system which steals from those wtill trying to start and grow their own support.
And left a bunch of socialist programmed drones who keep reducing freedoms and increasing compliance costs because they're so poorly trained by those schools.
Oh, don't get me wrong - the majority of my generation (35 - 55) followed faithfully in their footsteps. And just built on top of the structures they were taught were true.
Those older people had many opportunities for employment with all that development going on. So much opportunity without half a lifetime of miseducation to buy. They got their jobs, they paid their taxes, and enjoyed the benefits (as above, plus politicians and government commitments of the day). The bill they left the next generation outweighs the opportunities they left.
Yup, youre right, damn near all the previous generations before them did the same in comparison with the previous generation. And this new generation, which also has a great number of priviledges and opportunities that the last one didn't, will do likewise. I never see the point in the discussion or comment when I see it made.
One of the more niave statements - yes if they came into this world living in a cave and about to discover fire for the first time I'd agree, but the truth there is a cost that all future generations pay for what they are gifted from the work and labour of previous generations - each one has been more advantaged than the one before it, and each time they claim that this is the generation which will not...naiive, not to mention each generation that claims that the oil and resources all run out in the current generation...niaive in the extreme - one day it will be correct, but by then tell me with certainty that that generation won't be sitting on another planet.
That depends on whether you reckon 2020 still counts as part of this generation.
http://www.dailymail.co.uk/sciencetech/article-2634046/Elon-Musk-says-S…
That was pre-peak oil, Now future generations are saddled with infrastructure they wont be able to afford to maintain, huge debt from the "spend up" of the last 30 years they are expected to pay off back to the BBs who's pensions are derived there from and a damaged planet with a lot less resources to do it with.
Great [a]moral position you have, I feel more and more they should say "f*** it we are defaulting on the obligations you imposed on us with your spendthrift ways" every day.
"another planet" oh right so yes you are amoral really. In effect you are saying lets destroy this planet and all the species on it (or are we doing a noah's ark?) as thats ok we can all move to another one. I can but suppose you have no children/granchildren and/or really dont care at all.
"another planet" aint gonna happen.
What a refreshing letter...
So much so, that I have had many discussions with many a graduate, who are doing the same things, parying, boozing, travelling and HAVE 50L salaries...AND still have enough tucked away for a despit on a basic home....which they dont want...they want to get better.. WHEN ready to do so.
And put to them that ineffect what is dexcribed in the articule is what they are doing.
The response goes along these lines..."yeah, spoose so, its legal, so whats the problem?...so is legal tax avoidance and smart investments."
So BJ has the balls to stand up call a spade a spade dig down to the hard core truth, and let everyone else run around with shovels shoveling ... cleaning out stable...
Motivation? Well seems most missed that.. it is obvious hes a National / Key English supporter, and right now with deficites etc, that doesnt look good for National. The student debit is a massive hole....
He nails these levels to
For example, you could continue to employ a 12% repayment rate for earnings up to $50,000 pa, but then once a graduate hits $50,000 pa they could be subjected to a 16% repayment rate for marginal income above that threshold. This repayment rate could be lifted to say 20% for marginal earnings over $80,000 pa.
Spot on those suggested with those graduates I have discussed this with... as "fair"
But what is missed from discussions is once one gets over the 50/60K mark, interest at a graduated increase starts there...tied to 90 day bills rates +1/3 or ave bank floating rates.
This is the bit that turns interest free loans from a subsity for partying and travel to incentive to repay what morally should be done.
In essence all he is saying put into law what morally should be for bthose graduates who are fortunate to have landed approiate incomes.
one of the difficulties with our modern system of education is that it teaches if the authority (head master, teacher) says something then it is true. Likewise most believe anything the police do is legal, and anyone they arrest is a criminal. (believe me, Jury duty can be a frightening wake up call for those who believe in sentient humans).
Therefore for many people, anything that isn't strictly illegal is automatically morally acceptable.... including anything they can get away with without being caught.
Primary and secondary education is 100% tax payer funded, lets make parents pay for this too as isn't it just an investment in their children?
The part that is completely overlooked by the author is the benefit to the country in providing an incentive for education. In the case of primary and secondary, its largely mandatory and free as education of the population is deemed that important to the country.
Yet as soon as the level of education reaches tertiary level this logic stops? And any further education is seen as 100% selfish (I agree its largely selfish, but not 100%, hence paying 100% as in full loans at market interest rates is bad policy).
Interest free loans are a small compromise and go a very small way to acknowledging the Societal benefits of a well educated population.
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