Handouts to support thrift?

The Australian this morning runs a left-field editorial opposing the cut to the discount for paying student contributions upfront.

Completely ignoring the only compelling rationale for the discount, reducing the cost of the HELP scheme, the editorial drifts off into various social policy objectives: encouraging students to use some of their part-time earnings to reduce their debts, and encouraging the ‘responsible behaviour’ of families who assist their students by reducing their debt.

But why is increasing public debt to decrease private debt a good thing?

And if increasing public debt to decrease private debt is a good thing, why restrict it to families with university students?

No wonder we are sinking in a sea of debt when even the most economically rational newspaper resists sensible plans to reduce government spending.

——
The editorial also incorrectly states that the change will reduce revenue flows to universities. Instead, universities will get slightly more revenue directly from students and slightly less directly from government. We’ll have to wait for the forward estimates next week to see what the government thinks, but after factoring in some behaviour change I’d estimate a $70-80 million shift.

One Response to “Handouts to support thrift?

  • 1
    Baz
    May 6th, 2011 15:02

    Whooaaa, hang on, can’t agree with this.
    Bruce Chapman was the creator of HECs and he some interesting things to say about ‘gaming’ the system. First as we know, you pay next to no interest on a HECS debt – inflation only. HECS is also collected through the tax system – i.e. if you don’t pay tax, you don’t pay HECS. Hence if you die, if you go overseas, have a kid, whatever…you don’t pay HECS. And the longer it takes to pay HECS, the bigger the interest rate subsidy, the less you pay in real terms. there’s some good stats around about how much HECS the government collects (how much is bad debt), but the fascinating point Bruce made was that, for the average person, the effective discount (from the interest rate subsidy) works out to be about 35%. Hence, it never made any commercial sense for people to pay upfront anyway….unless of course they were gonna make a million bucks as a first year graduate.
    Anyway, totally agree that the Aussie is flawed, but it is still very bad policy. More people will defer payment. This means the Gov will collect less ‘cash’ upfront and in return get a dubious asset (a future stream of potential cash inflows). It will mean a loss in real terms as the interest rate subsidy discount is greater than the upfront discount.
    But lastly is more philiosphical. The message for the change was ‘to target students of richer families’. F-me. This government is obscessed with people who are financially independant. It doesn’t matter if it’s private health care rebate, private schools funding, floody levy, anybody who makes do, anybody who tries to better themselves is in the cross hairs of these labour idiots. Unbelievable !!