The Government’s $16bn legislation to cut study debt by 20% will be in the first Bill before the House when the new Parliament sits next month. There is also a way smoother change in the Bill designed to deal with the way people respond to the system.
Elyse Dwyer and Matthew Maltman from the economics-analysis e61Institute report that the way that student debtors rationally respond to the way repayment design makes them poorer.
The present problem is that HELP charges are now are based on a debtor’s entire income, once they reach the present $54,000 threshold. As the Accord Final Report warned, this “can create a disincentive to earn additional income, especially for those just above the threshold.”
Less a disincentive than no reason at all. According to Dwyer and Maltman a graduate on $62,000 loses almost all of a $1,000 pay rise to income tax and increased HELP repayments. For “some” in a higher tax bracket, a $1,000 pay rise loses them $1,100 in income tax and higher HELP payments.
Despite the different purpose of HELP loans to the PAYE system, if it looks like bracket creep and extorts like bracket creep, then for all outcomes that is probably what it is.
Under the imminent legislation, the 15% repayment will only kick-in on earnings above the new $67,000 base. People earning $125,000 and over will pay 17c on the dollar and a flat $8,700. For somebody earning $70,000, the new repayment plan will reduce what they pay from $1,750 to $450. Dwyer and Maltman conclude that the new arrangement is “smoothed” so that half of an extra $1,000 in pay goes to tax and HELP payment for everybody effected.
They also point to e61 research that HELP debtors know the payment ceilings and “adjust work patterns” accordingly, especially peopled with “flexible working arrangements.”
Scheme design, thresholds and payment calculations really matter and the changes will reduce disincentives just above repayment thresholds, “while maintaining the progressivity of the repayment schedule.
Just like tax bracket-creep does not.
