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September 14, 2005

The Smoking Gun

Labour

Keith Ng has gone through the student loan papers which Michael Cullen tried to supress, and has found and highlighted what is the real smoking gun. To quote Mr Ng, the Salient news editor, directly:

This is the costing that Labour went public with, and the assumptions are downright dishonest

The focus has been on Treasury's initial costings, but the real scandal is the second set of costings where Dr Cullen ordered the Treasury to use his assumptions, rather than their own. And his three main assumptions he ordered Treasury to use were:

* voluntary repayments will continue at the rate at which they occur under the current scheme

* the percentage of the $150 [weekly] entitlement for living costs drawn [down] does not increase

* draw down rates increase in the following manner: [a <1% change in fees borrowing over 4 years]

Now one can have a sensible debate about the extent of the change to borrowing patterns (such as whether takeup for FT students will move from 69% to 95% or 85% or even 80%) but Cullen ordered them to assume basically no change at all!!

The most indefensible of Dr Cullen's instructions is that Treasury should assume there will no change to the rate of voluntary repayments. I dare anyone at all to argue that with interest free loans, there will be *no* slow down of voluntary repayments. If you believe that, then I have a bridge for sale. This is saying that graduates will use surplus cash to pay off a loan on which they pay no interest rather than pay off their mortgage quicker. It is incredibly dishonest.

Only slighly less dishonest is the instruction that the amount of money being borrowed for living costs will not increase.

And finally you have the instruction on how many more people will take up loans. As I said you can have a rational debate about the extent of any extra uptake, but Cullen instructed that Treasury assume that the increase by only 1%, *over four years*.

If this was the united States, the term impeachment would be coming to mind. They lied about whether Treasury had costed the policy, they supressed the advice Treasury did provide, and they then instructed Treasury to use Dr Cullen'as assumptions which are to quote Keith downright dishonest.

I can not beat his summary which is:

In short, it's been rigged to make the scheme look as cheap as possible, and Cullen specifically asked for it to be like that.

I hope the media pick up the significance of this issue. It is not a case of two sets of reasonable assumptions, where say Treasury is saying 26% more FT students will take out loans and Cullen is saying 15% will, and to be honest who can be certain which is closer. The Cullen assumptions are just nonsensical, basically saying no change at all, and designed to fool the public until after the election. This is the man who was in the 1990 Labour Government which did the same thing with the BNZ and the surplus which wasn't. Leopards do not change their spots.

The Chief Ombudsman deserves a knighthood for his decision to force Labour to release this information.

Finally please note I have not read the released material myself, and am basing my comments on Keith's analysis, but I heard John Key refer last night to similiar issues, so if John Key and Keith are agreeing this time, I reckon it is safe :-)

Posted by David P. Farrar at September 14, 2005 02:31 PM | TrackBack
Comments

It all goes to show what a bunch of liars Labour well and truly are.
No wonder they kept this hidden until forced to release it.
What other things are Labour hiding until after the election?
Benson-Pope inquiry, the investigations into Pete Hodgson committing assault, TWOA, for starters.

Posted by: darren at September 14, 2005 02:48 PM

"The costings are clearly rogue costings. They are clearly wrong".

Lying socialists. Did we expect anything else?

Mwaahahahaha. Baahahahaha.

Posted by: Gooner at September 14, 2005 02:49 PM

And NZOOM of course would not dear be a news leader on this....

Posted by: Andrew at September 14, 2005 03:00 PM

David,

I think that's increasing long-term debt, 4.87%, not by. But hey, what's a couple of billion dollars between friends?

And as for the conclusions by Treasury, even a first-year economics dropout cold have informed you of the consequences of incentives.

Although I am pleased to see the Ombudsman being listened too. A good precedent, but it would be better to see all political parties have their policies put to the beancounters for analysis.

Cheers,
Matt

Posted by: Matt Nippert at September 14, 2005 03:05 PM

Can anyone work out how much that costs per year?
I presume it would be much more than the $300 million Cullen was bullshitting us with and a little less than the maximum scenario of $1.1 billion - $900 million or so

Posted by: Emmess at September 14, 2005 03:05 PM

Can anyone work out how much that costs per year?
I presume it would be much more than the $300 million Cullen was bullshitting us with and a little less than the maximum scenario of $1.1 billion - $900 million or so?

Posted by: Emmess at September 14, 2005 03:14 PM

What a filthy fucking liar Cullen is. It seems he found the loop hole in the Fiscal Responsibility Act and has taken us back to the days of Muldoon and Caygill when Finance Ministers simply lie in the lead up to the election. On this alone, Labour should be out.

Posted by: rightkiwi at September 14, 2005 03:14 PM

Hang on everyone, try reading the papers before you go nuts. First, the intial Treasury costings ignore changes to the eligibility for allowances (i.e. overstate the number of borrowers). Second, they overstate the likely impact of fee increases - they assume a 3.6% p.a increase - well above the rate of inflation - when in fact they've only increased about 2% between 2001 and 2004.

I'm not going to bag Treasury, they do great work most of the time - but this not their finest plus, I remain of strongly of the view that most projections of loan debt assume borrowers will behave fundamentally different from they way they HAVE behaved since 1991...

Students borrow for text books, beer, and mince - not to play the stockmarket. Also, any weird debt incentive that the scheme MAY have had (under National) has been largely addressed by Labour over the last few years.

So, as anyone else actually read the papers or thought about this issue or is the preference for uninformed and hysterical speculation (darren/gd, are you out there?)

Posted by: Paul at September 14, 2005 03:14 PM

I have seen the treasury papers. Annual cost by 2010 is $450 million, rising to $924 million by 2019.

Dr Cullen, Trevor Mallard and Heln Clark all stated the cost would be a maximum of $300 million per annum.

There is a name for that...

Posted by: 19 at September 14, 2005 03:20 PM

Hang on everyone, try reading the papers before you go nuts. First, the intial Treasury costings ignore changes to the eligibility for allowances (i.e. overstate the number of borrowers). Second, they overstate the likely impact of fee increases - they assume a 3.6% p.a increase - well above the rate of inflation - when in fact fees have only increased about 2% between 2001 and 2004.

I'm not going to bag Treasury, they do great work most of the time - but this not their finest and that is why Labour asked for more advice based on more sensible assumptions.

I remain of strongly of the view that most projections of loan debt assume borrowers will behave fundamentally different from they way they HAVE behaved since 1991...

Students borrow for text books, beer, and mince - not to play the stockmarket. Also, any weird debt incentive that the scheme MAY have had (under National) has been largely addressed by Labour over the last few years.

So, as anyone else actually read the papers or thought about this issue or is the preference for uninformed and hysterical speculation (darren/gd, are you out there?)

Posted by: Paul at September 14, 2005 03:20 PM

Paul,

Yeah, students do borrow to pay for what you have outlined but with this scheme there will be a fundamental mindshift as to the amount that is borrowed and students will be more prepared to borrow money interest free and put in an income producing asset, i.e. bank term deposit. I don't think students are stupid at all - of course they will borrow to the maximum.

Does this mean the Westpac economit was right after all when Cullen called him a liar?

Posted by: Marcus D at September 14, 2005 03:24 PM

Yes Paul Im here and waiting breathlessly for you to tell me that Dr Cullen was right with his figures and this is all a Right Wing conspiracy. And that students will all rush to pay off their student loans in the fastest possible time. And only borrow the minimum amount they need.
Like the punctuation? Makes Cullens comments about borrowing for a tax cut look a little lame?

Posted by: gd at September 14, 2005 03:25 PM

Paul,

Could you do us a favour and post the URL of where the papers can be read. Can't find them on the National, Beehive, Treasury, or Ombudsmen websites...

Cheers,

Mr K

Posted by: Mr K at September 14, 2005 03:41 PM

Hi Paul

I am here.
I am not speculating, just noting the advice a student sought from the NZ Herald's financial advisor and the advice she gave.
Labour said their policy would cost $300 million.
Obviously it is more.
Thus Cullen lied.
Cullen also lied when he said there was no money for taxcuts when the camapign has seen Labour indulge in a reckless orgy of targetted bribery.
Mallard lied just like he also lied over his claims regarding alleged US influence in national.
Clark lied to the Sunday Star-Times over Doonegate.
Clark lied when she said she was too busy reading papers while racing through Canterbury when police say she knew what was going on and said it had been an "heroic" ride.
I could go on.
I will just add, NOBODY LIES LIKE LABOUR!!!!

Posted by: darren at September 14, 2005 03:41 PM

Since when has Treasury been right about anything ?

This from a few years back :

Lower demand for New Zealand exports of goods and services (largely tourism).
Lower export prices, compounded by higher import prices due to high oil prices.
Confidence is negatively affected, leading to a pullback on domestic consumption and investment.
Equity markets and exchange rates. Financial markets to become more volatile, with equity markets retreating and leading to flow-on impacts from wealth loss.
The impacts on the New Zealand economy from a conflict in Iraq are likely to be negative. Exporters and farmers face a fall in incomes through lower global demand and lower prices, compounded by higher input costs (largely due to higher oil prices


And what was this terrible event that would turn day into night.

THE WAR IN IRAQ !!

http://www.treasury.govt.nz/iraqconflict/

Since the Feb 2003 when this garbage was dreamed up, nothing like what they envisaged happened.

Posted by: Docent at September 14, 2005 03:47 PM

@Paul:

Cullens figures are based on a loan uptake of only 75%. Do you honestly think that that figure is realistic?

Posted by: spam at September 14, 2005 04:27 PM

The biggest factor is the loan balance. Cullen (not DR any more because he deserves to lose this title) has bagged Key about the increase in debt for the Tax Cuts. At a high level current debt is 20% of GDP. National plans to reallocate some capital spending to be funded from debt and this could result in an increase of 3%.

Therefore under National we have 23% of GDP in debt and everyone gets a tax cut, stimulates the economy etc.

Under Labour we get 25% of GDP in debt. Looks a no brainer to me. Cullen is a fuck wit.

Posted by: Aaron at September 14, 2005 04:31 PM

Dammit - its actually an uptake of 70% - sorry about that - but the point still stands.

Posted by: spam at September 14, 2005 04:35 PM

Aaron
And soon to be an ex Deputy Prime Minister F*** W**( My Presbyterian suppressed upbringing doesnt allow me to spell the maughty words in full)

Posted by: gd at September 14, 2005 04:37 PM

The first leftie attempt at passing the buck by Docent - Treasury are a bunch of baffoons. I pick 25-30 more feeble excuses, attempts at buck passing by 8pm.

Posted by: Gooner at September 14, 2005 04:41 PM

There must be a god. For the last week I have been thinking that maybe there was nothing in the costings and that Cullen was just with holding them to fuck off National and let them chase after a white elephant.

All I can say is Hallelujah, Allah is great and all the rest.

Posted by: Aaron at September 14, 2005 04:42 PM

Mr K: The Nat's have them - I presume that's where DPF sources his very selective material from.

Darren: such eloquence, how have you not secured a position as an editor?

Spam: the current figure is arount 60%, in which case a 25% increase seems reasonable enough particularly when you factor in increased eligibility for allowances.

Aaron: WTF are you on about?

Posted by: Paul at September 14, 2005 04:53 PM

Paul,
I know of students who have invested their loans in the stockmarket under the current system. Or is this because they aren't lefties doing arts courses.

What do think honestly think people will do?

Posted by: Aaron at September 14, 2005 04:57 PM

There are two points to the suggestion that the Treasury analysis is wrong.

Firstly, it suggests that there are too many public servants providing shoddy advice that isn't necessary, in which case there is room for reducing the bureaucracy.

Secondly, it doesn't actually detract from the fact that the taxpayer pays for that advice--and we can assume it's good advice since the Government pays specialist advisers to advise them. There is no excuse whatsoever for hiding that advice.

Thirdly, even if Treasury advice is shonky, Treasury are still much more qualified to give that shonky advice than the Labour Party.

Try as you might, Paul, to distract the actual discussion on the fact that the Government tried to hide this advice until the Ombudsman ordered that it be released, you're not succeeding.

Posted by: Insolent Prick at September 14, 2005 05:03 PM

Aaron, as do we all but so what - as I said earlier there is no credible evidence to suggest there is anything other than very small minority of students rorting the system - prove me wrong, if you're able, with something other than a unverifiable personal sample!

What do I think they'll do? Pretty much what they've done since 1991/92 - there's bugger all incentive to do otherwise.

Posted by: Paul at September 14, 2005 05:10 PM

IP, don't you mean "right". As in the initial Treasury advice was correct - hey, don't mind me, but I think you'll find the rest of your whanau arguing it was initially correct and subsequently wrong whereas I prefer the alternative view.

Posted by: Paul at September 14, 2005 06:17 PM

I have produced a treasury report that shows their predictions just under 3 yrs ago as false.
In court if you are proved to be telling tales then any further estimates you give are tainted as well.

The complete irony is the so called increase in debt is somewho terrible, but the increse in debt under NP tax cuts is heroic !

Anyway a good way to check Treasurys numbers is to look at the Aussie student loan scheme, which also is interest free.
Other near zero interest rates are in Japan where the Official interest rates are below 0.1%.
Everthing should be booming , but it isnt.

The main driver od student borrowing is the affordability, which relates to their salary once graduated. hence dentists happily borrow $100,000+ while an arts graduate will hestitate to borrow over $30,000.

Posted by: docent at September 14, 2005 06:42 PM

yeah docent, lets scrap treasury!!

"an arts graduate will hestitate to borrow over $30,000"

Yeah, they are showing such restraint right now arent they!!

Posted by: Kimble at September 14, 2005 06:50 PM

And dont try talking shit about Japans interest rates.

"Everthing should be booming , but it isnt."

What an idiotic statement.

Posted by: Kimble at September 14, 2005 06:57 PM

Nippert is right when he points out that that the increase in Debt/GDP is to 4.97% not by 4.97%. Reading the Herald article one will note that the increase is 0.19 percentage points.

Matt does however go way OTT with his statement that it is good to see the Ombudsman being listened to: every time the Ombudsman has recommended a government release information they have done so; there is provision in the OIA for the *cabinet* to order something not released, they have never done so, and probably never will. It may be good to see that the Ombudsman is listened to, however the Ombudsman is always listened to...

Posted by: Graeme Edgeler at September 14, 2005 08:45 PM

all imbeciles hands up! now whoever answers this question gets a lollipop....who has the highest interest rate??..US,UK,Japan,Germany,France,Sweden,Denmark,Italy,Spain,Holland,Iceland...fuk what do i have to say you think charging students interest on student loans is fair why the fuk is noone else tacking on 7% bills and doubling time to pay..
a fair reflection of what???? Yeah real heroes the mkt will provide...start learning Chinese folks it'll be more handy if this shit becomes popular and 'quality eduaction' is made so unaffordable its a bad word

Posted by: ishy at September 14, 2005 09:02 PM

all imbeciles hands up! now whoever answers this question gets a lollipop....who has the highest interest rate??..US,UK,Japan,Germany,France,Sweden,Denmark,Italy,Spain,Holland,Iceland...fuk what do i have to say you think charging students interest on student loans is fair why the fuk is noone else tacking on 7% bills and doubling time to pay..
a fair reflection of what???? Yeah real heroes the mkt will provide...start learning Chinese folks it'll be more handy if this shit becomes popular and 'quality eduaction' is made so unaffordable its a bad word

Posted by: ishy at September 14, 2005 09:04 PM

thank god docent i thought i stumbled across a high altitude blog..anyone feeling dizzy..some of you should be or must be just born that way.
We got the highest interest rate in the OECD and im surprised anyone is supporting such a BAD policy, right or left!!
The student loan scheme is a farce, and yes the biggest abuses like bulk drawdown were introduced by the National govt. Im a student and i don't want to be a cashcow. If any of you have an inkling of knowledge in the Finance field you will know that the reason why Govt is so reluctant to withdraw such a punishing condition on an education is because these loans with guaranteed income are very good for the books..ie retaining Tier II capital at a level where more debt can be introduced hassle free.
So the bigger debt really the more convenient. And before anyone says something stupid about 'but the debt will rise'..these capital requirements cannot be met with zero-interest yielding capital :P
lookie i learned something today Mummy

Posted by: ishy at September 14, 2005 09:14 PM

Kimble if you cant contribute anything other then hand-me-downs go and stare at a wall:p

Posted by: ishy at September 14, 2005 09:18 PM

@Ishy:

NZ has the highest interest rates - not just on student loans, but also on borrowing.

Some of those countries have higher taxes; some lower. Some have higher uni fees, some lower. You can't really just cherry-pick the stat that you want to support your claim without looking at the wider issues.

7% was affordable when I paid back my student loan. A higher interest rate is actually an incentive to pay it back faster - which is partly why I did. If the interest rate was below the rate on savings, then I would have saved the money and collected the marginal interest. Hell - I should have done that anyway on the sharemarket!

Posted by: Spam at September 14, 2005 09:19 PM

i assume you are on a high wage then sir, and not at all the 'general' public, and i can pick 7%, this is one factor that we have been put in the bottom half of affordability for tertiary education.
Hang on a minute if you are aged old enough to have paid bak your student loan, unless you are hyperwaged you must be talking of a different regime...i don't know what you could saveof 150 dollars a week and average 5000 dollars a year..if you can good on you.
A rule is not made for the exception, if you've been to University and studied anything of quality im sure you understand that

Posted by: ishy at September 14, 2005 09:26 PM

i assume you are on a high wage then sir, and not at all the 'general' public, and i can pick 7%, this is one factor that we have been put in the bottom half of affordability for tertiary education.
Hang on a minute if you are aged old enough to have paid bak your student loan, unless you are hyperwaged you must be talking of a different regime...i don't know what you could saveof 150 dollars a week and fees average 5000 dollars a year..if you can good on you.
A rule is not made for the exception, if you've been to University and studied anything of quality im sure you understand that

Posted by: ishy at September 14, 2005 09:27 PM

i assume you are on a high wage then sir, and not at all the 'general' public, and i can pick 7%, this is one factor that we have been put in the bottom half of affordability for tertiary education.
Hang on a minute if you are aged old enough to have paid bak your student loan, unless you are hyperwaged you must be talking of a different regime...i don't know what you could saveof 150 dollars a week, my rent alone is 80 buks, and fees average 5000 dollars a year..if you can good on you.
A rule is not made for the exception, if you've been to University and studied anything of quality im sure you understand that

Posted by: ishy at September 14, 2005 09:28 PM

And dont forget the PM and DPM both lied to the House about not getting Treasury costings Caught on TV Both of them Roll on Saturday

Posted by: gd at September 15, 2005 11:41 AM

Cullens assumptions are just hog wash. No one just no one will pay back early an interest free loan, except Michael Cullen. And if you are offered interest free money you will borrow that to the absolute max ahead of other borrowings except Michael Cullen. The man is a loser if he thinks like that. It would have been more honest if he wrote the Treasury paper himself from his own office and signed it off. I am surprised he did not try and pull that one.

Posted by: tim barclay at September 15, 2005 01:19 PM

@Ishy:

No - I started-out owing about 16,000 on my student loan, with a starting salary of about 23,500 IIRC (not a huge wage, when a lot of people in my graduating class were starting on at least 30+, some as high as 40k - this was actually a 'summer job', although it turned into a permanent job 18 months later). Now - I don't know what the tax rates were (1995), but presume it was 15% (net). That gives me an in-the-hand income of about $375/week.

I had just finished Uni, so carried-on flatting. I believe my rent was about $80 a week - probably about $150 (being generous) incl. food, phone, power etc. It was therefore fairly easy to save $100 a week (or more) to pay-back my loan. I paid it back in around 3 years.

Posted by: spam at September 15, 2005 01:44 PM

Tim, et. al. not everyone will take the "free money", not 95% of people, probably not 90% of people.

Just contrast this with "Working for Families" - over 20% of families who qualify for this scheme haven't applied, and that's the kind of free money *you don't even have to pay back*.

Cullen's figures are obviously wrong, but so are Treasury's.

Posted by: Graeme Edgeler at September 15, 2005 01:50 PM
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