The Federal Labor Party and Greens have opposed any plans to sell-off Australia’s outstanding Higher Education Contribution Scheme (HECS) debt, citing that such a move would raise costs for students and leave taxpayers worse-off. From The Australian:
Education Minister Christopher Pyne has confirmed that the government will refer the idea of “securitising” student debt to its Commission of Audit. “Britain have sold their HECS debt as an asset, and we’re going to investigate whether it’s a sensible move,” he told the ABC’s Q&A program…
Opposition higher education spokesman Kim Carr said the idea had failed in the UK and referring it to the Audit Commission would produce a foregone conclusion, because one of the panel members – former higher education minister Amanda Vanstone – has agitated for students to be forced to repay their debts sooner.
“The only way this makes any economic sense to a purchaser is if they can make money out of it. It would have to involve higher charges for students via increased interest rates or altered terms of repayment,” Senator Carr said.
“It’s naive to believe you can privatise the HECS debt and have the terms and conditions of the scheme operate in exactly the same way. Only an innocent would see it in those terms.”
Britain’s attempts to sell off student debt have proved fraught…
The article goes on to explain how investment bank, Rothschild, has been pushing for British students’ interest rates to be raised, and has asked the UK Government to underwrite investors’ risk, effectively using the public balance sheet to guarantees returns to private investors. Kim Carr believes the same thing could happen in Australia.
As argued earlier this month, the sale of Australia’s HECS debts would likely end up being a raw deal for Australian taxpayers. As HECS debts do not have interest (except CPI increases), by definition the sale would be at a significant discount to face value (currently around $23 billion). So while the Government would receive some funds up-front, it would lose the ongoing cash flow as loans are repaid – in effect substituting a future income stream for a smaller lump-sum.
Whether such a sale ends up benefiting taxpayers depends on whether the sale proceeds exceed the net present value of forgone repayments as loans are paid-back over time. Given that the purchasers of any debts would be investment banks, who face a higher cost of funding than the Government and would only participate if large profits are on offer, we can presume that any deal would likely be weighted in their favour, not taxpayers’.
As such, the proposal reeks of another attempt by government to sell-off the family jewels in order to pay the bills. While such a move would be financially beneficial in the short-term, it could prove costly over the longer-term as future revenue streams are reduced. And to make matters worse, there aren’t even privatisation arguments to support this sale, such as the notion that the private sector would be more efficient, etc.
Let’s hope the Commission of Audit properly evaluates the long-term merits of this proposal. Or if it doesn’t, that the Government has the sense to ignore the Commission’s recommendation to sell-off student debt.
