1. Dr DON BRASH (Leader of the Opposition) Link to this
to the Minister of Finance
When he told the House last week that, in relation to his interest-free student loan policy, “The actual costing will be $202 million a year by 2008-09 in terms of the impact on the operating provisions.”, what assumption was he making about the rate at which voluntary repayments would occur?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
None, because the assumptions underlying that statement were made by officials.
Does the Minister consider the assumptions made by officials to be still realistic, given that many people are already reducing the payments on their student loans to the bare minimum, and in some cases withdrawing payments they have already made; if so, why?
Hon Dr MICHAEL CULLEN Link to this
In terms of the first element, the assumption is that the level of voluntary repayments fell from that, to make the level fall from 18 percent of the value of compulsory repayments to 2.25 percent of compulsory repayments. That is already built in to the estimate. As to the second, of course, anybody who is silly enough to do that, such as the gentleman referred to yesterday—[ Interruption] Well, yes, because people are paying interest at the moment on their new increased student loan, and, unless they are earning at least 11 percent beyond the 39 percent tax rate, they are actually losing on the deal.
Does he accept that even the modest changes in the rate of voluntary repayments would significantly increase the cost of his interest-free student loan policy, given the fact that a third of total student loan repayments are currently voluntary?
Hon Dr MICHAEL CULLEN Link to this
The last statement is incorrect according to my information, but I think the member perhaps missed my secondary answer. There has already been an assumption of a large reduction in the level of voluntary repayments built into the estimate I gave him—from 18 percent of the value of compulsory repayments down to 2.25 percent of the value of compulsory repayments.
Would the Minister be so kind as to table for the benefit of the House the assumptions underlying his $202 million estimate for 2008-09, given that the original assumptions made by Treasury on 22 June this year estimated a cost of some $390 million on the basis of very low voluntary repayments, and we now have a figure of $202 million on similarly low assumptions of voluntary repayments?
Hon Dr MICHAEL CULLEN Link to this
I will try to get that information for the member as quickly as I can in that respect. Of course, updated information will be included in the December Economic and Fiscal Update, and I will be happy to release all that at that time. But what the member is probably continuing to do is to repeat Mr Key’s mistake of not allowing for the fact that there is already a substantial interest rate write-off under the current scheme—not just because people who are students are not paying interest, but also because of the way in which the compulsory repayments are structured to ensure that 50 percent goes towards the repayment of capital.