Students Pay for Tax Cuts for the Rich

“The National-led government is cutting student support so it can pay for its tax cuts for the rich”, said Pete Hodkinson, President of the New Zealand Union of Students’ Associations. “This is a re-run of the last National government in the late 1990s which also cut student support as it cut taxes”, he said.

“The government’s shift of support from students to the best-off New Zealanders is short sighted and harmful; it penalises those trying to get ahead”, said Pete Hodkinson.

The government has announced that for 2012/13 it would not be shifting the parental income thresholds at which allowances are abated, and has fixed the student loan repayment threshold at $19,084 until 2015.

“The freezing of the parental income threshold was announced as meaning 1500 students would no longer have access to allowances. However the effect is even more brutal to those trying to get ahead as it expands the number of families facing very high effective marginal tax rates”, said Pete Hodkinson.

Since allowances reduce at 25 cents in the dollar earned above $55,000, even if there is only one child in full-time study, those households are paying 55% effective marginal tax rate (30% plus 25%). If there are two children in study then it climbs to 80% (though the impact is slightly later, at $62,000). Not shifting the parental income thresholds simply widens the number of households that are paying this higher effective marginal tax rate.

“There are some very negative incentives in play for those trying to do better because of the freezing of the loan repayment threshold. More beneficiaries will face higher effective marginal tax rates – and every dollar is so significant for the lowest paid New Zealanders.”, said Pete Hodkinson.

The gap between what a person on the DPB can earn before they face effective marginal tax rates of 99.5% is smaller. For a person on the domestic purposes benefit, the annual payment has lifted by an inflation adjustment to $17,316.52. Since this is now closer to the loan repayment threshold, it means that someone on the DPB who earns $100 per week, at which level their benefit itself is not abated (though accommodation allowance, for example, is likely to be) will now face an effective marginal tax rate of $59.5%. If that person earned $200 per week, the DPB would be abated, and in combination with having to pay off the student loan, the effective marginal tax rate would be 99.5%.

“The inevitable consequence of not lifting the repayment threshold is a tighter squeeze on those that can afford it the least. And frankly that’s just wrong”, said Pete Hodkinson.

ENDS

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