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Make student fees tax-deductable

Saturday 13 August 2005

Make student fees tax-deductable

“The unseemly scramble by National and Labour to outbid one another to secure the votes of indebted students is pork-barrel politics at its worst,” according to Andrew Gawith of Infometrics, a private sector economics firm.

Politicians have picked up on two concerns – the ever-increasing level of student debt, and the lack of any incentive for graduates to stay and work in New Zealand.

“But the real flaw in both Labour’s and National’s policies is that they focus only on indebted students. A much fairer way to treat all students would be to make their fees tax-deductable against future income,” says Andrew Gawith. “We would also put the loans scheme on a commercial basis – why should students be able to borrow on any more favourable terms than a young person trying to set up in business?”

By making debt cheaper (in Labour’s case free), the outcome will be more, rather than less, student debt, unless we make the dubious assumption that students are too short-sighted or morally upright to take advantage of investing interest-free money. Although students can no longer borrow lump-sums, there is every incentive for the 45% of eligible borrowers without loans to ramp up their borrowing to the maximum, and for those indebted students in the workforce to cease all voluntary repayments.

Providing such a generous incentive to borrow, for a very select group, sends a confusing message to those other Kiwis listening to the government’s pleas to save more.

“The cost of Infometrics’ proposed changes compares very favourably with the promises that are currently being bandied about,” says Andrew Gawith.

ENDS

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