APPEL Submission on Education

APPEL Submission on Education (Export Education Levy) Amendment Bill

The Association of Private Providers of English Language (APPEL) opposes the Education (Export Education Levy) Amendment Bill. Our general and clause-by-clause comments are made below. APPEL is the industry voice for private English language schools. It has about 70 members, all of whom are registered PTEs and Code of Practice signatories.

We ask that the Committee recommend to the House that this Bill proceed no further. APPEL wishes to make an oral submission to the committee, as will many of its members. Many industry members are based in Auckland and Christchurch and APPEL would welcome the Committee meeting in either of those centres. Our contact person is Dave Guerin, who can be contacted at the addresses noted at the bottom of the page.

General Comments

The overall purpose of this Bill is admirable as it seeks to protect the reputation of New Zealand export education and the funds of international students. The mechanics of it reflect a lack of consultation and analysis. It will punish the students at successful PTEs for the losses of those at unsuccessful PTEs, as students will pay the cost of this levy.

The Bill attempts to change the export education levy legislation to deal with the situation when student fee protection fails, allowing the Government to refund students directly for any financial loss. All PTEs must have student fee protection mechanisms in place under an NZQA policy that is established under s236 of the Education Act 1989 (which allows NZQA to set standards for financial management practices). The Government should pay for last year’s refunds of students at two PTEs. It was their student fee protection that failed. They were the ones who chose to make the refunds without talking to the industry. They acted outside the law and have tacitly acknowledged that through their proposed validation of last year’s payments. Finally, they are now proposing major reforms to student fee protection policies within NZQA to deal with previous policy failures and prevent recurrences of last year’s problems. This is a rare situation that the Government should pay for, recognising its own culpability and the huge contribution that the industry makes.

Association of Private Providers of English Language

13-Feb-04 2

Consultation was minimal over this issue and the Government actually refunded students before consulting with the industry. After Modern Age closed its doors on September 5, APPEL contacted officials to discuss any potential liability for accommodation costs but received no reply until the Government unilaterally announced that levy funds would be used to refund students. The Government consulted with providers about the payments that had been made later in September, but no report of that consultation has ever been released and it is not included in the explanatory note to the Bill.

Responsibility for PTE failure is another important consideration. While the owners of Carich and Modern Age are primarily responsible for those PTEs’ closure, the Government also had a role. In both cases, questions must be asked of the efficacy of NZQA’s monitoring of student fee protection mechanisms. For example, NZQA was aware that Modern Age’s trust account had not been operated properly in February 2003 but accepted advice from a KPMG auditor “who gave a verbal assurance that new protocols have been agreed with Modern Age and the account is now satisfactorily controlled”1. NZQA’s knowledge was made clearer when the auditor “discussed trust account with Ian Turner of KPMG on 11 February during Tauranga audit. Ian intimated he was not happy with the operation of the account to date, but new protocols had just been agreed and he was satisfied the account would now be well managed.”2 APPEL questions the point of doing an audit if verbal assurances are accepted – why not just phone in? Non-compliance had been notified to NZQA but they chose not to investigate further.

By the time Modern Age closed, the PTE had shifted to a new trust account provider and hundreds of thousands were missing from the trust account. If NZQA had followed up that matter promptly and efficiently, then the final shortfall would have been much smaller. The Government must thus share some burden for students’ loss of money as it controls entry, monitoring and exit of PTEs. PTEs, both individually or in groups, have no control over who enters the market, and have no way of managing their risk under the proposed legislation.

There is a conflict of interest here in that the Government is proposing to charge a levy on PTEs when, as the largest owner of export education providers (generating about 70% of industry revenue), it will benefit substantially both from the reputational effect of protecting students income and the pricing advantage that its institutions will enjoy over PTEs.

Accountability is an important issue and the proposal to reduce such accountability by removing details about the use of the levy and allowing the Minister to change levy allocations without consultation are problematic. Accountability is already poor, with the annual report for the levy being held up for months until it was released just before Christmas.

1 NZQA Audit Report on Modern Age Institute of Learning, February 2003.

2 NZQA File Note on Modern Age Institute of Learning, 16 May 2003. Association of Private Providers of English Language 13-Feb-04 3

This Bill proposes an open chequebook at the cost of PTEs. It allows the Minister to charge PTEs for any costs incurred by agencies that are in any way related to a PTE closure.

Finally, APPEL hopes that the Committee will inquire into the make-up of the $1.1m that the Government proposes to charge PTEs. No detailed information has been released by the Government about whether tuition, accommodation or living costs were paid out or whether the payments only related to international students. This lack of information reinforces the need for accountability.

Clause by Clause Comments

Clauses 1 and 2 are merely technical.

Clause 3 S238H(2)(e) should be retained in the legislation and not repealed as proposed (except for the aspect relating to collection, which duplicates other parts of s238H). The current requirement to provide for the use of the levy in the regulations provides an important feedback loop. While the Minister must consult with the industry prior to setting regulations, S238H(2)(e) provides for the regulations to describe the final decisions. When combined with the proposed new S238I(1C), the repeal would undermine the tenuous industry input into levy expenditures. The fact that the Minister did not include such information in the 2002 regulations does not justify the repeal of the section.

Clause 4

Clause 4(1) is mechanical and derived from the later sections, so major comment is not made.

Clause 4(2) includes proposed new s238I(1A-1C) which are major changes and are dealt with in depth below.

The proposed new S238I(1A) refers to the situation where a “private training establishment” offers a course of study or training. APPEL would greatly prefer that the term “registered private training establishment” is used, as the generic PTE term includes any organisation that offers post-school education and training.

The difference between registered and all PTEs is quite significant. APPEL is regularly notifying NZQA of the names of unregistered PTEs that are allegedly enrolling foreign students, which was made illegal from July 1 2003. These unregistered providers often lure students through lower prices, which they can maintain because of their lower standards and lower compliance costs. It would be ridiculous for registered PTEs to also bear the financial cost of those providers failing.

It is likely that this is a drafting error that could hopefully be clarified quickly. The interpretation section for Part 18A (the Part that the Bill amends) in s238D clearly refers to registered PTEs as a category of provider.

Association of Private Providers of English Language 13-Feb-04 4

The proposed new S238I(1A) refers to where a PTE “has not, cannot, or will not provide, in whole or in part, the course of study or training”. It would be useful to define who will make this decision, how they will make it and whether it could be used to circumvent other legal avenues under which students can seek redress.

There are other commercial issues that should also be addressed by the Government such as:

• whether precipitate action by the Government might invalidate insurance payouts (as was the case with some Modern Age students);

• whether the Government should require students to assign their rights as creditors in return for a refund so that the government can then chase any available funds to reduce the levy burden; and

• whether precipitate action by the Government might preclude mediation, legal action or other dispute resolution processes.

Those issues could be addressed by adding in some tests to be met before payment is made.

The proposed new S238I(1B) refers to what fees can be refunded. If the legislation is to be passed, then new wording should be added to S238I(1B)(a)(ii), as marked in bold below. The new text is necessary to avoid double-payments to students and to clarify the concept that students will only be refunded for what has not been provided. …to make payment to any person … to the extent that:

“the private training establishment has not refunded payment, provided tuition, provided accommodation or otherwise dispensed funds to the student”

The proposed S238I(1B)(b) is of major concern to the industry because there is no clear limit on what administrative costs that the levy administrator or another Crown entity could incur. They can be refunded not only for the cost of placing students but also for any other costs incurred as a result of the closure. APPEL would prefer that this clause be removed from the Bill. Placement of students is more likely to be carried out by the industry in any case, but any government agency contribution should be borne by the government, especially since any non-payment by a provider will, in part, be due to regulatory failure.

The ability for the Government to charge providers for any other costs directly incurred as the result of a closure could become quite significant. Could this include all manner of conference calls, meetings, trips around the country, trips to China and so on which the industry neither wants nor needs? Any charge on the industry must be kept to the student refunds if we are to avoid government agencies having an open chequebook on the industry with no accountability.

The proposed S238I(1C) should not be passed as it gives the Minister total control over the use of the levy, with no need to consult with the industry at all. It negates the value of any industry consultation prior to the levy being set.

Association of Private Providers of English Language

Clause 4(3) is retrospective legislation, validating what APPEL argued were illegal actions in the Government’s September 2003 consultation. The decision in early September 2003 to refund students’ accommodation costs was clearly outside the bounds of the present uses to which the levy can be put. The Government has now acknowledged this through this validation section. It should not be passed.

The retrospective legislation issue is even represented in the current legislation put forward by this Government. S238H(4) provides that no levy will be charged for any fees received prior to 1 January 2003. Now it seems that costs incurred prior to this new legislation being passed will be charged to providers.

Clause 5 is retrospective legislation again and the same arguments apply as for Clause 4(3).

The intention to charge PTEs a higher rate than other providers is curious. While one of the main reasons in the explanatory notes is that the sector benefiting from the refund should pay, it is clear that all providers benefit from students being refunded their fees. While that benefit may not be equal, it is inarguable that other providers benefit from maintaining New Zealand’s reputation. The levy should not simply be charged to PTEs. It confuses APPEL’s members why, if the Government is willing to make arguably illegal payments to students and then pass retrospective legislation that upends competition by making successful providers pay for their failed competitors, the Government did not simply chase the owners of these failed PTEs beyond their limited liability company structures. Both approaches are at odds with general commercial law, but at least one approach targets the original culprits.

A much better approach than simply charging the industry would be for the Government to take on some of the burden itself, where regulatory failure is partly to blame, or to have the industry deal with the issue voluntarily, as was under discussion prior to the Government’s snap announcement in September 2003.

Clause 6 validates what may have been illegal actions in paying levy funds to students in 2003. It should not be passed.

Clause 7 seems sensible if there is a legal problem that currently prevents funds being rolled over to the following year, although there appears to be no such problem. The clause by clause analysis in the Bill erroneously refers to this new clause allowing funds to be used in accordance with s238H, but it actually relates to s238I. Its point seems to be to further affirm the illegal use of funds in 2003 and allow the use of reserves for further refunds.

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