Scoop Election 08: edited by Gordon Campbell

Labour’s Student Debt Monster Plan – Greens Energy Fund

October 14th, 2008

Gordon Campbell on the universal student allowance and the axeing of the Greens’ billion dollar energy efficiency fundIf any election bribe can be justified, one that seeks to reduce student debt is acceptable enough – especially since the announcement comes right in the middle of a global credit crunch. Labour was expected to announce a universal student allowance policy during this election campaign, and the policy is clearly affordable – after all, the parental income test will not be gradually and fully phased out for another four years. While Labour’s initiative is being packaged as a lure to first time voters, most of the current crop of undergraduates will receive little, if any benefit from it.

The policy therefore runs the risk of being seen as too little, too late by student voters and their parents. That would be harsh, but understandable. Yes, Labour did abolish the interest accumulation on student debt at the last election – despite among howls of protest from National that this would result in debt ballooning out of control. That didn’t happen, and there is now bipartisan support for Labour’s approach.

On the cost of living front though, the government has been willing to preside over a ten year growth in student debt. In particular, it has chosen to keep alive the ridiculous notion that students must be treated as dependent on their parents joint income until their mid 20s. As a result, a whole generation of students has needed to borrow in order to eat, and to live – thus adding substantially to the student debt mountain.

Gratitude may therefore be a big ask, in the circumstances. Why should voters be expected to feel positive towards either Labour or National because – finally – this aspect of an unsustainable student debt experiment is being addressed ? The major parties have taken their time getting around to it. It will be four more years before the full student allowance is finally phased in – 13 years after Labour began talking about introducing it. In all probability it will take another decade before the current exodus of students headed overseas – looking for ways to pay off or evade their student debt – starts to ease.

A further dimension to the government’s neglect of tertiary education has been raised by Victoria University vice-chancellor Pat Walsh. Taken in isolation, the provision of a universal student allowance will widen the current imbalance between funding for students and funding for the institutions that teach them. As Walsh told RNZ’s Morning Report this morning, New Zealand currently spends 42 % of its tertiary budget on financial aid for students. compared with an OECED average of 18 %.

“ So looked at the other way,” Walsh continued, “ OECD countries spend 82 % directly on institutions, while New Zealand spends only 58 %. The effect of that, over a long period of time, is that universities are now under-funded per year by about $230 million.” Which is slightly more per annum, than the entire full cost of the universal student allowance is projected to be, during its first full year of implementation.

The argument would be that if some of that money was channelled directed into the universities, course fees could come down, and student allowances could be pitched at a lower level. Tertiary funding however, should not be such a zero sum game. Plainly, students are borrowing to live, as well as to pay course fees. Getting the balance right between university funding, course fees and student allowances will leave plenty of room for movement – and lobbying – over the next four years.

That’s why the student organizations are smart to be extending only a cautious and sceptical welcome to Labour’s initiative. The shape of the government’s final commitment is still some ways off, and its ultimate worth will depend the fine print of allowance levels and related conditions.

For now, the long phase-in period envisaged gives National an immediate opening during the election campaign. All the signs are that National’s student allowance policy will be unveiled in a week or so ( it seems to be making up policy as it goes ) and will deliver more money and sooner, but with more conditions, and to fewer students. In that respect, it looks likely to be a ‘universal student allowance’ restricted to the fortunate few. Good luck to them in trying to sell that on campus.

Sometime. it would be great if this country’s higher education policy could be planned, debated and financed rationally – because somehow, doing it the midst of a vote buying spree every three years, just doesn’t seem like the right time and place.

National axes the Energy Efficiency Fund.
For the past few weeks, the Greens have been touting their achievement in negotiating a billion dollar fund to compensate households for the hike in energy costs that will inevitably follow in the wake of the emissions trading scheme. The fund was to be dispersed in a number of energy saving, cost saving measures – and was part of the price paid by Labour in securing the Greens’ support for its ETS legislation.National’s environment spokesperson Nick Smith now says that a National-led government will axe the fund. While Smith says that National has other policies on energy conservation, that particular cupboard is virtually bare. None of John Key’s eleven pledge card commitments announced on the weekend so much as mentioned the environment. No commitments were made on emissions trading, or on New Zealand’s Kyoto commitments that Key would be facing, towards the end of his first term as Prime Minister. Will he be taking Rodney Hide’s advice, Rodney Hide’s advice, and renege on Kyoto ?

It would hardly come as a surprise if he did. On almost every environmental issue, big or small, National has tended to play the populist anti-environmental card. It has railed against more energy efficiency lightbulbs and against the recent shower standards as being the evil workings of the nanny state. It has now come out against planning to compensate New Zealand families for the costs they will face as we try to mitigate our Kyoto exposure, via an emissions trading scheme. Over the course of the last five years National has gone from being climate change deniers to being in denial about planning for climate change. It is hard to see that as progress.

Mind you, Labour was not exactly shouting the Greens’ billion dollar fund from the rooftops, either. The fund is hidden at page 71, part B 16 of the Treasury’s Prefu documents, within the tabulations of fiscal risk. It is described there in terms somewhat short of iron clad :

: “The Act requires $1 billion to be paid into the Fund, from money appropriated by {Parliament, sometime between the Act’s commencement, and 1 July 2024. How the Fund will be appropriated across the 15 year period is yet to be decided, and will first require the Minister of Energy to determine the criteria for the Fund, Consequently, the Fund cannot be included in the forecasts. In addition, direct financial support for households of up to $180 million over 2009/10 and 2010/11 has also been agreed to be included in the 2009 Budget. This proposal would decrease the operating balance. The Minister of Finance has yet to fully consider the quantum of the risk.”

Meaning : don’t hold your breath, folks. Sure, there’s a billion dollars coming to do virtuous energy efficiency work sometime….oh, between now and 2024. That is, after we’ve figured out the criteria for it, and its likely impact on the operating balance and the degree of risk it poses. Lets talk some more about it during the 2009 Budget round.

Some of this vagueness even applies to the transitional funding over the next two years. For this sort of feel good / good will commitment, the Greens gave their support to the ETS legislation. Truly, when Helen Clark said this election was going to be about ‘trust’ the Greens could be forgiven for thinking this might have been some dark joke, at their expense.


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    1. 8 Responses to “Labour’s Student Debt Monster Plan – Greens Energy Fund”

    2. By brian marshall on Oct 14, 2008 | Reply

      Well Gordon, You got one thing right. It’s an election bribe and Labour will need to raise debt to pay for it.
      Seems that Mr Cullen isn’t such a good book balancer after all. I’d rather have the borrowing go on infrastructure spending and tax cuts myself, than fund student drinking binges.

    3. By Ian MacKay on Oct 14, 2008 | Reply

      The Student Loan currently is to cover living costs. ($150 per week) The University Fees are a separate issue. The Student allowance currently is for (I think) over 50% whose parents earn less than $45,000. Some rich parents bury their income in Trusts which makes the number of students getting the SA a bit more than otherwise. The proposed opening of the SA would even things up.

    4. By Andrew Scott on Oct 14, 2008 | Reply

      Cancelling energy conservation projects that reduce the need for more generation goes hand in hand with the Nats RMA plans. Nick Smith is after all an engineer who will define infrastructure as a dam rather than projects that reduce consumption. This all ties in with Nationals strategy of consume (tax cuts vs kiwisaver) versus saving. Isn’t that what has got the financial system where it is today.

    5. By Rosie Denning on Oct 14, 2008 | Reply

      I’m not sure what you did while you were at University, but I am a student and spend a lot more money on food than alcohol – it’s necessary to feed the brain if I’m going to continue my 13 hour study days for 5 years to keep getting A+s! It’s interesting that you say that Cullen is inept at balancing the books – do you have a PhD in accounting?

    6. By stuart munro on Oct 15, 2008 | Reply

      The observation about the length of our electoral cycle is pertinent. We would do better to move to a four year fixed electoral cycle, to reduce the silliness that characterises the current process.
      Limited terms are also a good scheme. Korean presidents have one shot to make a good name for themselves, a five year term with no return. They don’t get retirees that way.
      We have a lot of deadwood in our parliament.

    7. By Rory MacKinnon on Oct 15, 2008 | Reply

      Brian: Forgive the blatant copy/pasting, but I just had an identical conversation on the Salient website.

      I don’t doubt for a moment that this is an election ‘bribe’; I do however have every confidence that Labour have carefully costed it and have been sitting on it for some time (look back through the Scoop archives and you’ll see what I mean). I’d even go so far as to say it might be a sensible policy in the current economic climate to protect young people from accelerating debt – contrary to your assertions, students actually need that $150 per week for food, rent and power, just like everyone else. It’s the opportunity cost of full-time study.

      And for all the middle classes’ ranting about the price of cheese, at least they don’t have to actually borrow their cheese-pension from the Government. 😀

    8. By Brian Marshall on Oct 21, 2008 | Reply

      Rory and Rosie. You sound like you both are students so it’s likely I cannot change your opinions so I wont try, but let me explain my view point.

      NZ has an projected 10 years of deficits ahead. That’s 10 years of expenses exceeding income. There is a lot of other things I can think are better targeted at getting the governments money than paying someone to study for three years or more. Say like a doctor so my retired father so he doesn’t have to wait 12 months for a speciallist referral to see someone for his knee. Oh wait, he may have got kicked off. I’ll have to check with him about that.
      The Labour party proposal to have universal student allowances is basically taking money from working taxpayers (me and my family) and giving it to someone else (students).

      This spending is for people that are not in hardship or sickness, but choosing to study or to be dependant on the state for 3 years or more regardless of academic success, is also going to be inflationary. So not only am I going to be taxed for the privliage, but I pay more on my mortgage. Thank you Mr Cullen and Ms Clark.

      Lastley Rosie, I am not an accountant (and definitely not got a PHD of any sort)nor calling Dr Cullen inept. Far from it, he is a master socialist and has managed to keep the books in the black for the last 9 years. He did this by raising taxes to 39%, creating a huge distortion in the economny (if you ever check out statistics on the number of people at just under the $38,000 income band, and $60,000 income band put out by IRD or Dept of stats a few years ago, not sure which dept, you’ll see a bit of the hiding of income. What Ians post under my first post is alluding to).

      Meanwhile if I can ever get back to university to finish off my degree it’ll likely be part time as I have a family, a mortgage and some other students pissing up free money from the government, to support.

    9. By Rory MacKinnon on Oct 22, 2008 | Reply

      Brian, don’t give up yet. I do work in the tertiary education sector but I’m not actually a student – and even if I was, I’d be unlikely to receive the full benefits of this policy for another 2-3 years at least.

      If you’re correct in forecasting 10 years of deficits, that means that we need to think long-term about spending. I agree with you that there’s a shortage of doctors in the country, but why is that? Well, because of the ‘brain drain’ that National has railed against in past years – graduating medical students have escaped to stronger economies overseas to work off their huge loans – much of which is the result of eight years’ worth of borrowed living costs.

      So what this policy actually does is ensure that we won’t still be in this situation in 2018. Quite principled, really.

      And just for the record, I do think National’s bonding of rural doctors is a good idea – but there are plenty of other professions to consider as well: teachers, nurses, journalists…

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