More self-serving arguments against HECS

The National Union of Students had a flop last week with a very poorly attended ‘national day of action’. But they showed smarter tactics in peddling this story to The Age for a slow news Easter Monday.

The story opened this way:

THE Federal Government is under growing pressure to revamp the Higher Education Contribution Scheme, as students seize on research suggesting it could contribute to reduced home ownership, low fertility rates and tax evasion.

None of this ‘research’ should trouble the federal government, or anyone else, at all.

I’ve not seen any statistical evidence showing that graduates are suffering particularly in the housing market. Less than two weeks ago the papers were reporting research that despite high housing prices more young Australians were embarking on home ownership than in the past. I can’t find the paper on which that claim was based, and I am sceptical about whether it is true in absolute terms. But certainly earlier research found (pdf) that once you control for other factors affecting the time of house purchases, such as marriage and children, there hasn’t been a reduction in home ownership among the young (though the increases in house prices in the last few years should put a question mark over whether that would continue to be true in the future).

Regardless of the precise trends, though, as I argued last year there is no case for graduates getting a special first home owners grant. Effectively what NUS is saying is that even though graduates earn more on average than non-graduates, they should get an additional goverment subsidy so that they can further bid out of the market other Australians who did not go to university. Though Kevin Rudd has made the home ownership point himself, I would hope that on thinking more carefully a social democratic government would reject such a regressive policy.

On fertility, The Age says:

A 2002 research paper published in the Journal of Population Research even questioned whether HECS debts could deter people from having babies, an argument that has since been disputed by some social demographers.

‘Disputed’ understates the reaction. As I pointed out five years ago (pdf), the author of that 2002 article, Natalie Jackson, candidly admitted that she was making a ‘case’ for a connection and did not have the data to prove it. My own comparisons, using census data, between cohorts of women likely to have attended university before and after HECS showed no fertility difference between them. But I had no actual information on whether or not they had HECS debts. A 2007 article in the Journal of Population Research used HILDA data that did have a question on HECS debt, and again found that HECS had no discernible effect on fertility.

The idea that HECS contributes to tax evasion comes from this paper (pdf) and other work by the same author. Essentially, it shows that people who do not support HECS are more dishonest than others when it comes to reporting all their taxable income. This is not surprising – opposing HECS indicates an entitlement mentality. While there is something to the ‘tax morale’ literature out of which this research comes, the reality is that many people oppose elements of the tax system, and its effectiveness relies on coercion rather persuasion or a sense of moral obligation. And not having HECS implies that other taxpayers should pay for a student’s education instead, which may not help their ‘tax morale’. Tax cheats should be punished rather than tax laws changed to make them feel better.

So far as I can see, there are no strong arguments for reducing HECS costs – just self-serving claims by interest groups to enrich themselves at the expense of other taxpayers.

11 Responses to “More self-serving arguments against HECS

  • 1
    Pete from Perth
    March 24th, 2008 13:29

    Andrew: “it shows that people who do not support HECS are more dishonest than others when it comes to reporting all their taxable income. This is not surprising – opposing HECS indicates an entitlement mentality.”

    What a load of unthinking prejudiced bulldust.Tax avoidance is hardly the province of one side or the other.

    Kerry Packer’s “entitlement mentality” was legend. Care to demonstrate that he, and other wealthy tax avoiders, ever opposed HECS?

  • 2
    Sukrit Sabhlok
    March 24th, 2008 16:58

    It’s not necessary to have an entitlement mentality if you oppose HECS. You can oppose HECS by arguing for the government to get out of the income-contigent loan business entirely and not have an entitlement mentality.

    Government problems with tax evaders and HECS evaders are a good thing. It keeps govt. busy and prevents them from doing other things that are worse for individual liberty. It’s not desirable for a government to do efficiently that which it shouldn’t be doing in the first place.

    Also, evasion demonstrates/builds up public resistance to higher taxes.

    By the way Andrew, you should check up on the stats of international students fleecing the system by getting public transport concession cards. I recently met an international student friend who says that he’s managed to get a concession card two years in a row. Apparently, the train station staff are very slack at checking.

  • 3
    Andrew Norton
    March 24th, 2008 17:43

    Pete – I can’t see how any of that is relevant. Packer no doubt had his own reasons for wanting to avoid paying tax. But if a student opposes paying HECS the inescapable logical consequence of that view is that they must also believe that somebody else should pay. Unless it is greed (quite possibly Packer’s motivation), there is a sense of entitlement to other people’s money there.

    Sukrit – I think your view of distracting government is rather optimistic. They will still collect the tax and bill us for their efforts.

    Stats on international students defrauding the public transport authority are going to be hard to find, though there is a similar sense of entitlement on display in their campaign to get the concessions.

  • 4
    Leopold
    March 24th, 2008 20:06

    “inescapable logical consequence”

    I think you are overestimating the typical opponent of HECS. Many of them cannot understand the logical consequences of their position.

  • 5
    Leon
    March 24th, 2008 22:40

    It’s not desirable for a government to do efficiently that which it shouldn’t be doing in the first place.

    I disagree with this kind of radical mentality — you’re implying not that government inefficiency is bad, but that a situation with zero government is the only legitimate one. Arguing with respect to an absolute position rather than in a general direction is rarely convincing to non-converts.

  • 6
    Brendan
    March 24th, 2008 23:38

    That is not true Leon, what Sukrit said does not imply that a situation with zero government is desirable.

  • 7
    conrad
    March 25th, 2008 07:06

    I agree with Leopold on that one — except that it basically extends to everything (just ask an unemployed person). I also think that some people think, whether correctly or not, that they will pay it back over time indirectly via the tax system. There is probably some truth in that too, since HECS payers are likely to earn more than non-payers due to their degree.

  • 8
    Sukrit
    March 25th, 2008 10:29

    you’re implying not that government inefficiency is bad, but that a situation with zero government is the only legitimate one.

    You’ve got it backwards… I’m saying government inefficiency is good. For two reasons:

    1. We don’t want the government to be efficient at doing undesirable things. If the government is pursuing an officially sanctioned policy of rounding up people and shipping them somewhere to be tortured (e.g. Bush administration in the US), or if it’s cracking down on people dying of cancer trying to relieve their pain with marijuana (e.g. Bush adminstration), do we really want it to be efficient at such a job?

    2. Government inefficiency and incompetence builds up public resistance to even bigger government. If our government was perfect and did everything efficiently, there would be no news stories pointing out corruption and cronyism, and people would be more likely to favour government as the solution to all of society’s problems, at the expense of individual liberty.

    We do want the government to be efficient at carrying out legitimate functions, e.g. courts, police, defence.

    But at everything else we should hope and pray for as much incompetence as possible, because it might mean bad programs get scrapped.

  • 9
    Dave Bath
    March 25th, 2008 11:26

    Good post Andrew!

    The only reason I can see (and I’m a lefty and big-government lover) for subsidized housing of HECS debtors is if they are posted to rural/provincial areas (e.g. teachers, health workers) as part of a relocation package, but this should not be in the form of subsidizing private debt, but merely housing assistance (and I’d suggest that in remote areas, shared accomodation for a number of the graduates is probably the best option).

    Approaches like these might benefit those who are almost guaranteed low wages (as junior public servants) versus those who enter more lucrative private enterprise on the basis of a discounted loan to provide those qualifications.

    As a “classical lefty”, I’m just as appalled by the student union’s stance, although for slightly different reasons than a “classical liberal”.

  • 10
    Jason Soon
    March 25th, 2008 12:45

    Without HECS there would have been no market based reform of higher education or introduction of user pays. Without HECS there can be no further market based reform of higher education. In addition from an empirical perspective it works pretty well and is a great policy innovation which does something useful with the preexisting tax system which is already there anyway.

    If Surkrit’s radical nihilism is the future of libertarianism, I am not a libertarian.

  • 11
    Leon
    March 29th, 2008 18:11

    Sukrit — I was contending point no. 2.

    We do want the government to be efficient at carrying out legitimate functions, e.g. courts, police, defence.
    But at everything else we should hope and pray for as much incompetence as possible, because it might mean bad programs get scrapped.

    That seems hugely unrealistic to me. Until the government ceases its “illegitimate” functions, you support making government more inefficient (i.e. worse)?

    You’re saying you’d prefer the government to get bigger and more intrusive, so the public is eventually convinced of your ideas of “legitimacy”.

    That seems to be thinking in terms of good or bad (certain functions good, others bad/evil) rather than better or worse (smaller government/more liberty is better, bigger government/less liberty is worse). You have an ideal in mind, and are prepared to make the current situation far worse in the hope that the ideal is realized.