Loans to be deductible against earned income
No. 63, 25 July 2005
Interest on student loans to be deductible against earned income
Last week I announced that the next National Government will allow those with student loans outstanding to deduct the interest accrued and payable on these loans against earned income in New Zealand.
I have previously defended the student loan scheme, and still do. It has enabled a huge increase in the number of people able to participate in tertiary education. But just as the plumber who borrows to buy his van and his tools can deduct the interest paid on his loan against his income, so too should people who borrow to acquire an asset in the form of a tertiary qualification.
In principle, both kinds of asset - the van and tools on the one hand, the degree or diploma on the other - enable the borrower to earn additional income. Interest should be deductible against earned income in both cases.
We believe this is a fair and principled approach. The reduction in tax as a consequence of this deductibility will be applied directly by Inland Revenue (which administers the student loan scheme) to repayment of the principal of the outstanding loan, so that for many people owing student loans this policy should significantly reduce the time over which the loan is outstanding.
For example, somebody with a $30,000 loan and earning $45,000 a year would see the time taken to repay their loan reduce by about three years. Somebody with a $50,000 loan and a $50,000 income would save $11,000 over ten years.
The policy will reduce the barriers faced by those pursuing long and expensive courses, especially those engaged in post-graduate study or double degrees. The policy is designed to encourage the investment in skills and knowledge which is an essential part of lifting New Zealand incomes.
Read National's 2005 Student Loan Policy
In my last newsletter, I noted that the next National Government will allow parents who are employed outside the home, and for whom pre-school childcare costs are therefore a necessary cost of earning income, to deduct those childcare costs against earned income up to $5,000 per pre-school child each year, at a rate of 33%. This means that, for each pre-school child, a tax reduction of up to $1,650 per child is available.
Labour has attacked the scheme, arguing that their 20 hours of free access to a pre-school facility will be worth considerably more, when it starts in 2007.
But their attack is totally dishonest. Yes, for those few parents lucky enough to be able to send their three- and four-year-olds to a community-owned facility at the times which suit their employment, the Labour scheme may be better.
But National's scheme leaves parents free to choose any childcare arrangement which suits them - whether in a community-owned organisation, or in some other formal childcare facility, or in the many informal arrangements which exist to cater for the wide range of hours that today's parents work.
Moreover, National's scheme reduces the childcare costs for the employed parents of all pre-schoolers, not just of three- and four-year-olds.
In reality, only 22,000 children will benefit from Labour's policy - fewer than 10% of under-fives. By contrast, I expect that the parents of around 140,000 children will benefit from National's policy.
Labour is also putting huge pressure on the early childhood education (ECE) sector in another way, by invalidating the early training and experience of countless people employed in the sector. A few days ago, I received the following email from somebody who runs a childcare centre:
"Are you aware that Labour has invalidated some ECE diplomas? We have several senior staff that received their diplomas over five years ago and have been in the industry for a number of years. They have now been told that their diploma is not valid and they will have to retrain. There has been little or no support for them in retraining costs, bridging or otherwise. This has caused much distress in our centre.
"There is a desperate shortage of trained staff for this industry. We have many people coming in from overseas with excellent qualifications that are being made to retrain. If they could be granted a provisional diploma, so that they are employable and useful to the sector, then instructed to complete a set number of papers within a certain time frame, this would really help centres.
"We have recently employed a lovely Austrian woman with a full Austrian ECE degree. After spending $1,000 with NZQA, she was told she would have to spend a full year studying to receive a NZ diploma. This made her virtually unemployable in the industry, since she did not have the financial resources to train as a full time student. We have employed her as we recognise her skills and natural talent, but by doing so we have lost valuable funding."
This has to be absolutely crazy! Childcare centres desperate for experienced staff, and an inflexible Labour Government rule preventing good people from getting a job - perhaps Labour feels that somebody trained in Austria won't know the approved way of talking about the Treaty of Waitangi to three-year-olds.
Read National's 2005 Childcare Policy Veterans policy
Two weeks ago, continuing the steady roll-out of policy which I began some months ago, I announced that the next National Government will recognise more appropriately the enormous contribution which those in our armed forces have made to New Zealand.
The full text of my speech to the annual Council meeting of the RSA can be found on the National Party website, but there were two particularly important features of the policy.
First, the next National Government will introduce a Veterans' Gold Card, entitling veterans with qualifying service who are in receipt of either New Zealand Superannuation or a war disablement pension to preferential access to hospital care and Housing New Zealand accommodation. Secondly, the next National Government will give an unqualified apology to Vietnam veterans.
For far too long, successive governments have denied that New Zealand troops in Vietnam were sprayed with Agent Orange, and have as a result denied that those veterans could have been adversely affected by Agent Orange.
Thanks in large part to the persistence of my colleague, Judith Collins, a Select Committee inquiry has finally established the truth - New Zealand troops were sprayed with Agent Orange, and many of them, and indeed many of their children and grandchildren, have suffered serious illnesses as a consequence. Vietnam vets deserve a full apology (not the further consultation offered by Labour), and they need and deserve free medical care for illnesses related to Agent Orange. Under National, they will get both.
Read National's 2005 Veterans' Affairs Policy And Labour?
While I have been unveiling a comprehensive plan to lift New Zealand incomes and achieve a fairer tax system - taking the pressure off working mothers, easing the financial pressures on those investing in skills and knowledge - the true character of the Labour Party has been revealed in the malicious and dishonest attacks on me and on the National Party last week.
My response to Labour's baseless and frankly ludicrous spin will be to release more policy on the issues affecting the lives of mainstream New Zealanders. Yesterday, Bill English released our core Tertiary Education policy. Today, Nick Smith and I will release details of our Resource Management policy. On Wednesday, we will outline our policy for Local Government.
You can read National's 2005 Tertiary Education and Resource Management policies by clicking the appropriate link.
These come hard on the heels of the policies summarized above. I will leave it to New Zealanders to decide which Party is focused on issues that will give them, and their families, a better future, and which parties are looking to conduct a shameful brawl in the gutter. I entered politics because I believe New Zealand needs to do better if we seriously expect our children, and our grandchildren, to build their futures here.
The Clark Government can conduct this election in the gutter if that is all they have to offer New Zealanders. But I intend to outline, debate and vigorously promote policies that will deliver a better future for our country.