There was a very nice article on Andrew Norton in the AFR on Monday.
Andrew Norton is an outsider in higher education. He doesn’t have a PhD, he’s not an academic researcher, he’s a self-described “classical liberal” and he’s not at all part of the clubbish circle of vice-chancellors, administrators and bureaucrats who run our universities.
Yet from this position way outside the tent, Norton has become Australia’s most influential thinker about universities, and his vision of a deregulated, market-based higher education system is coming ever closer to reality.
I’m not convinced that’s entirely true though – Andrew was an advisor to former education minister David Kemp before becoming an advisor to two Melbourne University VCs making him both an administrator and bureaucrat. He is only an outsider to the extent that his views on higher education are very different to the usual rent-seeking approaches.
Anyway Andrew has long had a bee in his bonnet about HECS – in particular, the fact that HECS is designed as an income-contingent loan. To quickly simplify and summarise: The government provides a loan to students to finance their studies and the loan is only repayable if and when the student’s (Australian taxable) income rises above a threshold level. Students don’t pay interest on these loans (but the loans are adjusted for CPI). Okay – so far so good. But …
Because women in richer households often work very little or not at all, particularly after they have children, many never earn enough to repay the HECS debt they owe to the federal government for their university education.
As a result, large numbers of people (not all women), who are only partly or not at all engaged in the workforce, are going to reach the end of their lives without paying off their HECS debts. And unlike other debts, HECS debts are forgiven when the debtor dies.
Norton calculated that if the government decided to recoup this lost money by reclaiming HECS debts from the estates of the non-payers it would add an estimated $800 million a year to the budget bottom line. (Even though the HECS generation of students has not yet reached old age, the impact on the budget is immediate because of the government’s accrual accounting system.)
Andrew and I have disagreed on this point for as long as I can remember.
To my mind, there can be no “bad HECS debts”. If a student – for whatever reason – never earns enough to repay their HECS debt then, by definition, there is no debt. That is a risk the government accepts when it makes an income-contingent loan. Hold that thought while I digress.
The proposal to “recoup lost money” and spend it comes straight from the Wayne Swan school of budgeting – identify a future source of revenue and then spend the money now. The proposal to tax stay-at-home mums at some future date when they die to finance current education is going to be a hard sell. Think “marriage tax” and “death duty”. It also highlights the problem of using accrual accounting in public finance – no matter how you slice or dice the issue, this will be debt-financed expenditure. Sorry – make that deficit-tax financed expenditure.
Another source of revenue that Andrew has long pointed to is those Australians who leave the country, work overseas, earn mega-bucks, and never repay their HECS debt. Okay – this is a problem; but what is the solution? Ban individuals with HECS “debts” from leaving the country?
Anyway I do have some sympathy for Andrew’s position, but I can’t see how the issue can be resolved as long as the HECS system is an income-contingent loan scheme. What he is really suggesting is that the income-contingent aspect of HECS be scrapped. But then why have a government loan scheme and not a commercial loan scheme where government only paid the interest on student loans?