Finance Finance News Why a HECS hike at this time makes no sense

Why a HECS hike at this time makes no sense

HECS HELP schedule
No job? Well when you get one, there'll be an extra bill waiting. Photo: Getty
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If the government really is considering cutting the threshold at which graduates start paying back their university debts, it will have to explain why it thinks these young Australians should take another body blow to help balance the budget.

The Australian Financial Review reported on Wednesday that the current income threshold of just under $55,000 could be cut to $45,000 – meaning HECS/HELP deductions would be levied on individuals working their way up the salary scale years earlier than expected.

The government is scrabbling for cash because the ambitious, and Senate-thwarted cuts to education spending it announced in 2014 are expected finally to be dropped in this year’s budget.

But why go after the young, again, to make up that shortfall?

Youth underemployment has hit a 40-year high, so students are already going into universities with less money and finding it harder to get work on the way through.

When they leave, if they don’t find a job they must jump through humiliating and pointless hurdles for Centrelink before it will hand over miserly welfare payments.

Then, if the student is reasonably numerate, they’ll realise the government’s 2016 cuts to over-generous superannuation tax concessions – the tax breaks that made their parents’ generation wealthy – was halved by the Turnbull government from its proposed $6 billion saving over four years to just $3 billion.

uni graduates
The government appears to be targeting young people – again. Photo: PA Wire

Those who’ve studied the tax code will wonder why negative gearing and the ridiculously generous capital gains tax discount are sacred cows, but the HECS/HELP system is not.

And finally, any graduate who has dabbled in economics will know that an individual’s degree is not a simple piece of ‘private property’ they’ve bought via a public loan.

It is funded by the government because, economy-wide, that degree will be used in the wealth-generating industries and businesses Australia needs to succeed. It is partly a public investment on which the state will make a good return.

A treacherous history

In early 1989, yours truly stood in a queue on a Perth university campus, waiting to enrol. A student union rep moved along the line asking each of us to sign a petition against Labor’s newly-created HECS scheme.

“Actually,” I told him in my best priggish tone, “I think it’s a pretty fair system.”

His answer was: “Yes, but you don’t think they’ll leave it at that do you? The cost will go up and up.”

How naive I was. He was absolutely right, as the table below shows.

Successive governments have increased the percentages of income payable to recoup the money sooner and help prop up a tertiary system groaning from lack of funding.

What the table above doesn’t show is that from the first year of the Howard government onwards, several higher thresholds were added.

The top threshold in that year was an income of $83,900 (in today’s dollars), with a rate payable of 6.0 per cent.

The top threshold in 2016/17 is now $101,900, with a rate payable of 8.0 per cent – though, of course, these are not the graduates struggling to pay their bills.

It’s in the lower threshold levels where young graduates, struggling with cost-of-living pressures and faced with a grossly distorted and over-priced property market, will be wondering what all that study was for.

Telling students and recent graduates that they need to pay more for the privilege of working towards an education – one that will help them become the entrepreneurs, researchers, managers and creators of intellectual capital of tomorrow – is just another slap in the face.

And it may leave their parents, who paid no fees or who grew up with a less punishing HECS regime, wondering if this ‘war on youth’ has gone far enough.

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