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Honest Education Providers Punitive Levy Opposed

Punitive Levy on Honest Education Providers Opposed

Media Release 24 March 2004

"ITI opposes completely the Government's new Bill to levy honest providers for the failures of a couple of private training establishments (PTEs). If anyone should be paying the cost of students' lost money it should be the owners of those companies or the government agencies that missed the signs of failure", said Dave Guerin, ITI executive director, after presenting ITI's submission to the Education and Science Committee today. "The PTE sector should not be treated as an open chequebook for other people's mistakes."

"Charging successful business for the failures of their competitors is a very strange approach and it is not implemented anywhere else in this country. The biggest risk for providers is that their competitors will simply close up shop when they hit hard times, because they know that the Government will cover their liabilities to students. Since the Government has no standing as a creditor, it will not be able to claim the money back but other PTEs will be left to pick up the pieces."

"There are also a number of technical deficiencies in the Bill as well that further extend the liability for PTEs. There is no limit on the 'administration' charges that Government agencies can pass onto PTEs. The people drafting the Bill do not seem to have aligned this policy with other NZQA policies either, and the wording will create confusion in the white heat of a PTE closure. This is the by-product of yet another rush-job without adequate consultation."

"This policy area is complex and any new policies need to be carried out in conjunction with the industry and suppliers of student fee protection products. Hopefully, we can get some real discussion in the select committee and with the Minister over the next few months."


Submission on Education (Export Education Levy) Amendment Bill Introduction

Independent Tertiary Institutions1 (incorporating the Career Colleges’ Association and the Association of Independent Degree-granting Institutions) is strongly opposed to increasing the export education levy on PTEs to pay for the accommodation costs of Modern Age and Carich students or for any future PTE closures. ITI opposes the entire Bill, except for a couple of technical changes that would not, in any case, justify a Bill on their own.

We wish to give oral evidence on our submission. Our contact person is Dave Guerin at the address cited below.

Our main recommendations are that the Committee should:

• recommend to the House of representatives that the Bill should not proceed; or

• note the various technical changes to the Bill proposed by ITI if the Bill does proceed.

ITI believes that the Government should support the Modern Age students to support the export education industry and to recognise the failings of the student fee indemnification policy that should have protected their fees. Failing that, the levy should be charged on the whole export education industry, which will benefit from the reputational effect of any refund.

Reasons for Opposing the Bill

ITI opposes this bill because of the Government’s poor policy implementation, lack of consultation, its retrospective nature, the plan to charge successful PTEs for the failures of other PTEs, a moral hazard problem, and the validation of previous illegal payments by the Government.

[1] ITI (incorporating CCA and IDI) has 15 members. They are large, high quality PTEs and enrol 1- 2,000 foreign fee paying students pa. ITI was formed in August 2003.

This Bill has been put forward because this Government’s student fee protection policy has failed and two PTEs have closed without having the funds to refund their students’ fees. The Government thought up, designed and implemented this policy and now expects PTEs to pay for the mistakes of Government and failed competitors. Some of the key issues include:

• NZQA’s poor performance in the quality assurance of Modern Age;

• NZQA’s and TEC’s failure to deal with Carich’s problems even after numerous academic audits and financial reviews;

• the Government’s general inability to recognise its responsibility for the failure of those two PTEs; and

• the Government’s lack of legal pursuit to date of the directors of either PTE or of their trust account operators – while they may be perfectly innocent, it seems sensible to start by charging them the cost rather than the providers that have remained open.

This proposal is characterised by a lack of consultation. When Modern Age closed on Friday September 5, the industry approached the Government to discuss the likely shortfall in student refunds. The Government refused to engage on the issue but then on Monday September 8 it announced that it would use export education levy money to refund the students. There was no consultation then and members of the Committee will note that the results of subsequent consultation have not been conveyed to the House in the explanatory notes to the Bill either.

That is because the Government’s actions are simply not supported by anyone in the industry.

Retrospective legislation is rightly abhorred by the community and ITI opposes the charging of PTEs for costs that have already been incurred by the Government.

Charging successful businesses for the failure of their competitors is a very strange situation.

The Government’s plans to charge those that have complied with legislation for the problems caused by those who have not complied should be rejected by the Committee. Competitors are not expected to pay for their competitors’ failures in any other area of business, except where they control entry to the industry. In this case, the Government controls entry through NZQA and if it wants to guarantee students’ funds, it should do so itself.

The legislation will create a moral hazard problem where unsuccessful PTEs will close their doors and force their competitors to pay student refunds rather than seek to trade through the difficult patch. This problem will be compounded if the government does not require students to assign their rights as creditors to the Government so that the Government can recoup as much of the costs as possible from the failed PTE.

Last October, ITI questioned the Minister’s illegal payment of refunds to Modern Age students. Our view was that the payments could not be justified under the “development, promotion, and quality assurance of the export education sector” covered in s238I of the Education Act 1989. While the Minister of Education disagreed with us, the Government’s proposal to validate last year’s payments in this Bill does tend to support our original view. If Parliament had intended to establish a fidelity fund (as it is now considering) it could have done so in 2002. The proposed validation of the illegal payments made in 2003 under clause 6 of the Bill should not be passed by Parliament.

This Bill, under clause 4(2) would also allow the Minister of Education to determine priorities for the use of funds under the levy, which would seem to bypass the consultation required in order for the Minister to set the levy. This is a further step away from the Government’s intention ro an industry-controlled levy and should not be passed.

Technical Issues

ITI is not convinced that this Bill should proceed further, but some technical changes are suggested below to improve the Bill in case it does proceed.

Clause 3 removes a useful accountability measure in the Bill and should not be passed by Parliament as is. While the part of S238H(2)(e) that relates to collection of the levy duplicates other sections, requiring the regulations to specify the sue of the levy is a useful control on the expenditure of funds.

Clause 4(2) would insert new subsections that refer to “private training establishments”. This should be adjusted to refer to “registered private training establishments” as a private training establishment is, according to s159 of the Education Act 1989, any organisation that provides “post-school education or vocational training”. The legislation should only refer to registered PTEs, which have to undergo various quality checks. Unregistered PTEs are also now forbidden from enrolling foreign students and registered PTEs should not have to compensate their students.

Clause 4(2) also specifies the circumstances in which student refunds will be made. It does not specify who will decide whether a PTE “has not, cannot, or will not provide, in whole or in part” a course, an omission that should be rectified. The definition of closure is also far too wide, in that the clause could conceivably come into force when there was a genuine dispute about provision between students and provider. The drafting issue is crucial because the Minister has already provided money from the levy as refunds in legally dubious circumstances, as evidenced by the retrospective clauses put in this Bill. It would be useful for the proposed legislation to be aligned with NZQA’s student fee protection policy, where protection relates to the following situations:

• voluntary closure of PTE;

• voluntary withdrawal of course by PTE;

• regulatory closure of PTE;

• insolvency of PTE; and

• withdrawal of accreditations.

ITI has commented in its submission to NZQA on a number of definitional problems about those situations but at least they are more tightly specified that in the legislation.

ITI recommends that where costs are charged to PTEs that they be limited to reimbursements to students and reasonable costs incurred by agencies in organising those reimbursements.

The current Bill gives the government a blank cheque to charge providers for any costs incurred by bureaucrats and should be adjusted.

Finally, clause 4(2) refers to students in several places. ITI would prefer that these references be changed to “international students” in each case, to reflect the intention of the legislation.

Independent Tertiary Institutions 13-Feb-04 3

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