Don Brash
National Party Leader

21 July 2005

National tables tax plan on student loans

National Party Leader Don Brash has announced measures to ease the repayment burden on those with student loans, by making the interest payments on student debt tax deductible.

"A key theme of our tax policy is to ensure that New Zealand remains the first choice for talented young New Zealanders to choose to work and live. We must provide better incentives for our people to build their future in this country.

"I have already signalled that reducing the gap in incomes between New Zealand and Australia will be a key theme of our election campaign. While our full tax policy, when it is released, will address this issue, it is clear to us that student loans, like compliance costs, the RMA, and poor infrastructure are among the list of issues which this country must address if we want to get ahead.

"This measure will facilitate a more rapid repayment of student loans by working New Zealanders. National will make all net interest payments on student loans tax deductible against earned income. This policy will have an initial annual cost of around $70 million.

"This initiative is both fair and principled. Young workers who borrow for the purpose of setting themselves up in their trade or business are able to deduct the cost of interest from their taxable income. Students who borrow to invest in knowledge should be treated the same way. National recognises that individuals who have taken on a student loan have made an investment in their future.

"This tax deduction will only be available to student loan holders who are paying tax on earned income in New Zealand. It will apply from April 1, 2006.

"The deduction will be made automatically by the Inland Revenue Department (IRD) and will require no extra work or form-filling for borrowers. The IRD will credit the tax deduction on interest actually paid to the student loan account of the borrower. It will be automatically directed to lowering the loan balance, thus accelerating the repayment of the loan.

"For a student with a $30,000 loan, earning $45,000 a year, this could reduce their tax liability by up to $693 a year. That money would ensure they are able to pay their loan off faster. At the end of ten years, the tax deduction would cut an extra $7540 from the loan principal, and would reduce the time taken to repay the loan."

For students who invest in long and expensive courses (eg doctors, post-graduate students), and who end up with large loan balances, but usually also higher incomes, the initial annual value of this deduction will be more valuable. National intends to encourage excellence and to assist the investment in advanced skills and knowledge.

"Today's announcement is only one aspect of our overall tertiary policy. In the coming weeks, I will be announcing further policy to ensure that the taxpayer investment in tertiary spending is effective in giving young people the knowledge and skills to build a better future," says Dr Brash.

ENDS

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