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Insights 31: 19 August 2016
Our latest report - Decade of Debt: The Cost of Interest-free Student Loans
 
Register for the Wellington grand-final debate: Wednesday 24 August
 
Listen to Election analyst Henry Olsen's views on the race for the Presidency

Teachers' unions expose themselves (once again)
Roger Partridge | Chairman | roger.partridge@nzinitiative.org.nz
As you read this, our teachers’ unions are preparing for war. For the first time in history they are planning meetings of 60,000 teachers, nationwide, during school hours.
 
Their target for this unprecedented action is unexpected. It is not an attack on their remuneration. Nor on their terms and conditions. Nor even changes to the national curriculum.
 
Instead, it is the indisputably well-intentioned Education Funding Review, which aims to solve the shortcomings in the school decile mechanism for funding schools. 
 
The problems with the decile mechanism are widely recognised. It does not accurately target resources to children most at risk of underachievement. And it has unintended impacts by stigmatizing low-decile schools.
 
The review proposes replacing the decile mechanism with a standard per-child funding amount, with an additional funding amount for children most at risk of educational under-achievement.
 
The review also recommends schools be given a global budget covering salary costs and other operational costs of running a school. While the Ministry will continue to pay teachers’ salaries, salary costs will be a credit against a school’s global budget.
 
Both changes bring advantages. The per-student funding will more directly target at-risk children than the decile system. And global funding will increase flexibility for schools – in much the same way as bulk funding did in the 1990s.
 
Unfortunately, our teachers’ unions dislike change. If anyone can find a solution, they can be relied on to find a problem.
 
This time their problem is that global funding will allow schools to make trade-offs between salary costs and the other, non-teaching, costs of running a school. This, they say, could lead to increases in classroom sizes and cuts to teacher numbers.
 
But if schools gain the flexibility to improve educational outcomes by changing how they allocate resources, surely that is a good thing? Why should a school be prohibited from trading-off salary costs for, say, increased use of technology? That is exactly the trade-off that occurs in every other profession, every day. Why should schools be different? If there’s a better way, let’s free up our schools to find it.

The unions may claim to be guardians of our schools, but their protestations reveal something else. Their opposition has less to do with the interests of children than protecting their members’ jobs. We should not blame them for this. They are unions.
 
But let’s not mistake self-interest for the public interest – or the interests of those children most at risk. They deserve better.


We can do better with $600 million
Dr Eric Crampton | Head of Research | eric.crampton@nzinitiative.org.nz
A lot of people have done well out of the past decade of interest-free student loans. But that hardly means the policy is what is right for the country.

A decade on from the Labour government’s wiping of interest from student debt, the annual subsidy provided to students through the student loan scheme is over $600 million dollars – and is forecast to increase. For every dollar lent to students under the programme, about sixty cents gets counted as an asset on the government’s books. The rest is written off.

What has the government received for the billions of dollars spent on interest rate subsidies? Reduced tertiary enrolment rates, longer student loan repayment times, greater overall student debt, and a host of controls that have had to be placed on access to student loans to prevent outright rorts of the system.

This week, The Initiative launched its decade-on retrospective look at the zero percent interest scheme. It echoes many of the conclusions reached by the Child Poverty Action Group’s report released last week. We both find that the restrictions that are a necessary part of interest-free lending come at a very high cost in terms of access to student loans.

In short, you just cannot lend out enough money at zero percent interest to cover the costs of the student with greatest financial need without simultaneously encouraging everyone else to borrow to that maximum amount and put the money into term deposits. The restrictions on student loans then have to make students in real financial need worse off – doing otherwise, without means-testing, would make the scheme’s costs balloon further.

Introducing interest on new student loans would slightly lengthen student loan repayment times. On reasonable assumptions, a student graduating with a Bachelor’s degree following the typical earnings path would take an extra year to pay off the debt. But under income-contingent repayments, the fortnightly burden on the paycheque would not change. And students would again be able to borrow what they really need to finance their study and cover their accommodation costs.

If the point of the interest-free loans scheme was to improve access to tertiary study, it failed. If the government wants to improve tertiary access, it needs to redirect resources away from student interest rate subsidies and toward means-tested funding and improving tertiary preparation at secondary school. Six hundred million dollars per year makes room for a lot of options. 

Read the report, Decade of Debt: The Cost of Interest-free Student Loans, on our website.


World Premiere of Trailblazers: The New Zealand Story
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
The world premiere of a new film on New Zealand’s post 1984 economic reforms will screen in the Academy Cinema (below the Auckland Public Library) on Thursday 25 August at 6pm. 
This film was made by Americans for an international audience. It documents the dire inherited situation, the tough decisions taken, and highlights gains along with pain.

Refreshingly, it focuses on results rather than fantasising about ideologies or conspiracies. 

Why is this refreshing? Well, it is a change from the abstruse rants about neo-liberalism that seem to have become de rigueur in parts of academia in New Zealand. 

An article in the DomPost this week by University of Auckland professor Dame Anne Salmond illustrates the genre. She urged readers to tell “our leaders” that “neo-liberal doctrines” are unacceptable.

So what are these doctrines? In her fantasy they deny the existence of society. They make virtues of individual selfishness and greed. They deny basic Kiwi values of integrity, decency, a good life for ordinary people, affordable homes; clean rivers and beaches and even a fair go for all.

Darth Vader in Dame Salmond’s article is epitomised by Baroness Thatcher, and her Anglo-Saxon ilk. Yet her justification is little more than a gross misrepresentation of Thatcher’s comment that there is no such thing as society. Here is the full context.

I think we've been through a period where too many people have been given to understand that if they have a problem, it's the government's job to cope with it: 'I have a problem, I'll get a grant.' 'I'm homeless, the government must house me.' They're casting their problem on society. And, you know, there is no such thing as society.

There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It's our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations. There's no such thing as entitlement, unless someone has first met an obligation.


A reasonable interpretation is that Thatcher was pointing out the obvious – grants must be funded by actual people. They can’t be funded by an abstract noun. Yet Salmond evidently prefers to tilt at windmills. 

For relief, call Chamanolie (09) 307 101 or email chamanolie@omnicron@co.nz to book a seat.
 
On The Record
 
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