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June 4, 2013 | by  | in Opinion |
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Letters from a Young Contrarian

My Fellow Comrades,

Three weeks on, the vibe from Budget 2013 can be summed up in one word: boring. No controversial tax cuts. No significant new spending. David Shearer was quoted saying that it was all a bit of a let-down. Boring Bill, the Minister of Finance, believes that boring is exactly what a Budget ought to be, arguing that “[we] were conditioned in the 2000s to believe that Budgets should be about the novelty of new, expensive spending programmes.” He’s referring here to Aunty Helen’s persistent use of the cynical and politically shrewd tactic of the Election-Year Budget Bribe.

The largest and most egregious of these occurred in 2005 with the introduction of the interest-free Student Loan scheme. Trailing in the polls, and with an election just four months away, Labour announced that interest on student debt was to be written off. The bribe worked, and typically disengaged and apathetic students mobilised to vote for Labour, allowing them to narrowly hang onto power for another three years. This resulted in two lamentable outcomes: first, the vile and despicable little racist Winston Peters became our Minister of Foreign Affairs. Like, what the actual fuck? The second, and more relevant, was the entrenchment of a scheme which exclusively benefits and enriches students at the expense of every other sector of society.

These days, to be a student and argue that interest-free Student Loans makes for terrible policy is almost to be labeled Judas reincarnate. But before you cry heresy, I want to ask you a fairly simple question: do you know what a negative-real-interest loan is? If the answer is yes, feel free to cast the first stone. But I suspect the overwhelming majority of you will have answered in the negative, so I beg you to hear me out with an open mind.

Every year, the policy costs the Government over half a billion dollars. Intuitively, it feels like it shouldn’t cost the Government anything to leave interest out of the loan equation, but it does. Economists use unnecessarily confusing jargon like the ‘time value of money’ and ‘negative real interest’ to explain the concept, but it’s actually very simple to grasp. If you’ve ever wondered why a dollar mix of lollies in your parents’ day bought a kilo of candy while the same small change only gets you a measly handful of tangy apples today, you’ve encountered the time value of money.

To see how this concept affects debt, imagine that your grandfather borrowed $1000 from his mate in 1960. $1000 50 years ago could buy a house. Today you’d be lucky if it could even pay for the front door. If Grandad paid his friend back a grand in today’s money, you’d be a fool to say he had squared his debt. It would be blatantly unfair and unequal. It’s the same with Student Loans—we actually end up paying less money back than we borrowed as a result of the lack of interest. This is what is meant by a negative-real-interest loan: sure, we pay back the numerical amount of the money we borrowed, but in reality we don’t pay back the full value of the loan.

If that isn’t stark enough for you, consider this: every member of society who pays tax, every last cleaner and fruit-picker and single mother working three minimum-wage jobs, every last one of them, has loaned those privileged few of us who go to university $13 billion. In return, we will pay them back $8.5 billion. That’s just rude. In order to pay for the cost of that $4.5 billion(!), poor people, people not intelligent enough to get into university, people who choose careers that don’t require a tertiary education, old people, and all businesses big and small have to pay higher taxes. This is the true reason why a student’s freedom from interest is such a shitty policy; not because ‘it costs heaps’ but because it literally makes every other demographic in society poorer.

And that’s not even the full cost of the scheme. NZ ends up getting double-fucked because the Government also has to borrow money in order to make up the shortfall. The problem is, this debt exists in the real world, so we actually have to pay interest on it. And just in case you’ve forgotten from Budget 2013, we as a country spend more paying off the interest on our debts alone than we do on the police, early-childhood education and the Unemployment Benefit combined. It’s massively fucked up that we put a such a huge financial burden on ourselves and future generations in order to pay for the loans we give out for free.

And for what? It’s common sense that the primary, if not the sole, effect of a degree is to increase the earning potential of the graduate. It’s great for us; we get to use our Commerce degree to become wealthy in future. But the unintended cost is that other groups of people miss out on that chance. Transferring money from the poor and uneducated to the favoured and generally well-off few is exactly what this policy does. It’s one of the most deplorable, inequitable laws on our books.

So how dare we act like spoiled brats and complain that tertiary education is too expensive, when the Government is literally paying us to go to university. While everybody else in the country has been expected to tighten their belts so that the country can weather the financial storm in which we have found ourselves, we feel entitled to take other people’s money. And then have the barefaced cheek to demand more! We need to check our fucken privilege.

Yours, Cam.

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