Bills Digest no. 43 2015–16
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WARNING: This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
James Griffiths
Social Policy Section
10 November 2015
Contents
The
Bills Digest at a glance
Purpose of the Bill
Structure of the Bill
Background
Committee consideration
Policy position of non-government parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human Rights
Key issues and provisions
Concluding comments
Date introduced: 17
September 2015
House: House of
Representatives
Portfolio: Education
Commencement: The commencement date for each
Schedule is provided for in clause 2 of the Education
Legislation Amendment (Overseas Debt Recovery) Bill 2015. Details of the
proposed commencement dates can be found on page 7 of the Explanatory
Memorandum to that Bill. The Student
Loans (Overseas Debtors Repayment Levy) Bill 2015 commences at the same
time as Schedule 1 to the Education Legislation Amendment (Overseas Debt
Recovery) Bill 2015.
Links: The links to the Bills,
their Explanatory Memoranda and second reading speeches can be found on the
Bills’ home pages for the Education
Legislation Amendment (Overseas Debt Recovery) Bill 2015 and
the Student Loans (Overseas Debtors Repayment Levy) Bill 2015,
or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the ComLaw
website.
What the Bills do
- The
Bills extend the existing post-secondary income-contingent loan schemes, the
Higher Education Loan Programme (HELP) and the Trade Support Loans (TSL)
program, to include debtors not resident in Australia.
- Since
the introduction of both loan schemes, debtors were able to leave Australia and
so avoid compulsory repayment of their outstanding loan debts whilst they
remained overseas.
- From
1 July 2017 these foreign resident debtors would be expected to make the same
repayments as if they were living and working in Australia whilst working
overseas, subject to the level of cooperation provided by the relevant tax
authority in their country of residence.
- The
Bills also support better international collaboration in targeting outstanding
debtors under income‑contingent loan schemes into the future.
How the Bills work
- The
Education Legislation Amendment (Overseas Debt Recovery) Bill 2015 (the primary
Bill) requires overseas debtors to notify the Taxation Commissioner of their
absence from Australia after a certain period of time.
- The
Bill imposes a liability on overseas debtors to repay amounts once their
‘assessed worldwide income’ reaches a certain point. The liability will be
imposed as a levy.
- The
way in which the foreign currency components of an overseas debtors’ ‘assessed
worldwide income’ is to be converted to Australian currency will be set out in
guidelines and rules issued under the Bill.
- The
Bill also addresses the use and disclosure of personal protected information to
improve the administration of the loans schemes.
- The
Student Loans (Overseas Debtors Repayment Levy) Bill 2015 is a separate but
related Bill which imposes the levy.
Why the Bills have been introduced
- The
Bills give effect to a 2015­–16 Budget measure.
The purpose of the Education Legislation Amendment
(Overseas Debt Recovery) Bill 2015 (the primary Bill) is to amend the
administrative legislation for HELP loans (the Higher Education Support Act
2003) and TSL loans (the Trade Support Loans Act 2014) with near
identical provisions requiring overseas debtors to repay amounts through a new
levy.[1]
These amendments also create a new concept of ‘assessed
worldwide income’.[2]
This concept takes into account a given debtor’s income from all sources,
whether earned in Australia or overseas. It is to be converted into Australian
currency under guidelines or rules issued under the legislation.[3]
If the given debtor’s assessed worldwide income exceeds the minimum repayment
income for a given income year, they will be forced to make a compulsory
repayment through a levy.
The Bill also contains measures that will assist both
Australia and other countries with income-contingent loan arrangements in
identifying overseas debtors, and possible non-compliance, by allowing greater
information sharing between the Australian Tax Office (ATO), the Department of
Education and Training (Department) and foreign governments.
The Student Loans (Overseas Debtors Repayment Levy) Bill
2015 (Levy Bill) is a separate (but related) Bill which imposes the levy.
The Bills are both relatively simple in structure. The primary
Bill contains five schedules.
- Schedule
1 of the Bill includes two parts relating to the repayment of accumulated
HELP debts by overseas debtors:
- Part
1 details amendments to the Higher Education Support Act and
- Part
2 clarifies the application of these provisions.
- Schedule
2 of the Bill largely replicates Schedule 1, to ensure consistency
between the application of the new repayment requirements across both loan
schemes. Schedule 2 includes two parts relating to the repayment of
accumulated TSL debts by overseas debtors:
- Part
1 details amendments to the Trade Support Loans Act and
- Part
2 clarifies the application of these provisions.
- Schedule
3 of the Bill amends the Higher Education Support Act to allow the
Secretary of the Department to access tax file numbers for HELP debtors.
- Schedule
4 of the Bill amends provisions of the Taxation Administration Act 1953
to allow a taxation officer to disclose taxpayer’s information in order to
assist foreign governments to identify people who have an outstanding student
debt.
- Schedule
5 of the Bill makes other amendments to the Income Tax Assessment Act
1936 and the Income Tax Assessment Act 1997 to ensure that overseas
debtors cannot claim their HELP or TSL repayments as allowable self-education
expenses for Australian income tax purposes.
The Levy Bill is provided separately in order to abide by
section 55 of the Constitution, which requires laws imposing taxation to
only deal with the imposition of taxation.[4]
This Bill has no other effect.
HELP and TSL loans are designed to support greater access
to education and training. HELP loans work by raising a debt when a student
attends higher education, with the government loaning the student their
contribution to the cost of the higher education course. This contribution is set
by government under the Higher Education Support Act. Conversely, TSL
loans operate by paying apprentices instalments up to a total of $20,000 over
the course of their apprenticeship, to assist with everyday costs. This raises
a debt to the government. When the apprentice or higher education student
reaches an income of a set threshold ($54,126 in 2015–16), compulsory
repayments are made from their income to pay off the debt. Both loan schemes
are based on the assumption that the private benefit to the student of their
education and training will increase their earning capacity over their working
life.
The intent to recover overseas HELP debt was first flagged
by the then Minister for Education and Training on 10 June 2014, as
part of discussions with the United Kingdom on higher education policy.[5]
It was then raised again in media reports in August 2014, endorsed both by the
peak body Universities Australia and Professor Bruce Chapman, the creator of
the original Higher Education Contribution Scheme (HECS), and the precursor to the
HELP.[6]
The then Minister confirmed that work to produce a reciprocal agreement with
the United Kingdom on outstanding student loan debt was continuing.[7]
Such an arrangement would presumably clarify the roles,
responsibilities and access to data sharing that would assist the United
Kingdom to recover outstanding student loan debt from its citizens resident in
Australia, and allow the Australian government to recover outstanding HELP and
TSL debt from its citizens resident in the United Kingdom.
The policy measure was announced on 2 May 2015, prior to
the 2015–16 Budget.[8]
The initial press release indicated a focus on HECS (the program names HECS and
HELP are often used interchangeably) debt, with a commencement date for the
policy change of 1 July 2017. TSL debt recovery was not yet included in the
proposal, nor was there a clear mechanism for the debt recovery.
In the 2015–16 Budget on 13 May 2015, the policy was included
as a revenue measure: ‘Higher Education Loan Programme – recovery of payments
from overseas debtors.’[9]
It was forecast in Budget Paper No. 2 to recover over $26.0 million
over four years from 2015–16, and more than $140 million over ten years. The
inclusion of outstanding TSL debt was not explicitly provided for in the Budget
measure.
Since the policy announcement, there has been no
consultation process or Exposure Draft of the legislation provided – these
Bills are the first opportunity to explore the legislative mechanisms intended
to ensure overseas student debtors fall under the same requirements as those
resident in Australia.
The Bills have not yet been referred to any Committee for
consideration.
Senate Standing Committee for the
Scrutiny of Bills
In its recent Alert Digest, the Senate Standing Committee for
the Scrutiny of Bills drew Senators attention to the potential infringement on
the right to privacy in relation to Schedule 4 of the Bill.[10]
The Committee ‘leaves the question of whether the proposed approach is
appropriate to the consideration of the Senate as a whole’.[11]
The Committee had no comment on the Levy Bill.[12]
Following the policy announcement of 2 May 2015, the
relevant Shadow Minister, Senator Kim Carr, stated that the Opposition would
support measures ‘to protect fairness and integrity in universities, including
the HECS system.’[13]
In this press release Senator Carr was critical of the delay in its
implementation.[14]
Following the introduction of the legislation to the House of Representatives,
the shadow Assistant Minister stated that:
Labor supports this legislation because it takes a
responsible approach to budget savings and, importantly, the integrity of our
income-contingent loan system.[15]
Liberal Democrat Senator David Leyonhjelm has previously
labelled the HECS scheme as ‘generous’ and so could support measures to ensure
repayment of outstanding debt.[16]
The Australian Greens then spokesperson for higher
education, Senator Lee Rhiannon, stated on 13 May 2015 that the policy ‘is
likely to be a logistical nightmare that will only raise a small amount of
money.’[17]
Generally major interest groups have been supportive of
the measure. The peak representational body for Australian higher education
institutions, Universities Australia, stated ‘this is a welcome move by the
Government in improving the fairness and sustainability of the student loans
scheme’ and referred to it as ‘long overdue’.[18]
The Group of Eight (a coalition of established,
research-intensive universities) has not made a formal comment in relation to
the debt recovery proposal.[19]
In its Budget coverage, the Innovative Research Universities organisation
stated the policy change was a ‘useful tightening of responsibility’, and the
Regional Universities Network stated it was ‘fair and equitable’.[20]
Of the relevant student representatives, neither the
National Union of Students (NUS) nor the Council of Australian Postgraduate Associations
(CAPA) acknowledged the overseas debt measure in their analysis of the 2015–16
Budget, instead focusing on the Government’s continuing higher education reform
package and associated funding reductions.[21]
The National Tertiary Education Union (NTEU) followed a similar approach in its
statement on the Budget.[22]
Since the initial 2015–16 Budget announcement, the
financial implications of this policy change have altered slightly. The measure
is now estimated to bring in more than $25 million from 2015–16 to 2018–19 and
more than $150 million over 10 years in fiscal balance terms.[23]
The initial costing was for more than $26 million in savings over the forward
estimates and only $140 million over 10 years.[24]
This may be due to the extension of the policy change to TSL debt, as well as
more updated forecasts in current HELP and TSL debt patterns.
As income-contingent loans are dependent on student
debtors gaining employment and a certain level of income before they are
required to repay those loans, the overall health of the economy in which debtors
are working is crucial when assessing the fiscal impact. This makes longer term
costings such as these problematic.
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bills’ compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bills are compatible.[25]
Parliamentary Joint Committee on
Human Rights
The Parliamentary Joint Committee on Human Rights considers
that the Bills do not raise human rights concerns.[26]
The ‘problem’ of student loan debt
Concern about the debt profile of income-contingent loans
is not a new phenomenon. Since the 2005 reforms which changed the initial
Higher Education Contribution Scheme (HECS) into the Higher Education Loan
Programme (HELP) there has been a steady stream of media interest related to
new statistics on HELP debt.[27]
Yet it is interesting to recognise that this interest comes
relatively late in the history of the scheme. HECS was introduced in 1989,
reformed in 1996, and replaced with HELP in 2005. While the Department of
Education and Training publishes an annual Higher Education Report on spending,
performance and policy changes in the sector, it didn’t contain an estimation
of the proportion of new student loans which was predicted to remain
outstanding until 2005, more than 15 years after the introduction of HECS.[28]
The Department also introduced this assessment of outstanding debt, now known
as the Debt Not Expected to be Repaid (DNER) measure, into its suite of program
key performance indicators.[29]
As can be seen in the press clippings cited above in footnote 27, coverage
of the HELP program now regularly includes observations about the level of
accumulated student debt and the outstanding proportion expected to not be
repaid.
Why does student loan debt arise?
Despite media and other attention, a certain level of unpaid
student debt is an unavoidable aspect of a program like HECS, HELP or the TSL
scheme. Income-contingent loans are based on the understanding that some
debtors may never reach the income level required for compulsory repayment (see
N Wran, below). This may be because the debtor spends significant time outside
of the workforce, due to unemployment, parenting or other caring
responsibilities, or leaving the Australian taxation system by going overseas. A
student debt arises as soon as a student takes out a loan in order to access
higher education: outstanding student debts are written off at death.[30]
The initial development of the HECS scheme saw the inability
of some students to repay as a benefit of the scheme. As the Committee on
Higher Education Funding, which first recommended a form of student
contribution to expand higher education funding, put it:
People whose personal incomes are below the threshold would
not be required to pay the tax debit. This has a number of important
advantages:
-
Anyone who has little or no
capacity to pay would not be required to do so;
-
People who leave the workforce, for
example for child rearing, would not be required to pay until such time as they
re-enter the workforce and their personal income reached the level of average
weekly earnings;
-
People who were not employed, who
were welfare beneficiaries, or were in low paid employment would not be
required to pay; and
-
People from disadvantaged
backgrounds would only be required to pay if they joined the top 22 per cent of
all income earners.[31]
The Minister’s second reading speech, Explanatory Memoranda and
associated materials for the Higher Education Funding Act 1988 were
likewise silent on the issue of outstanding student debt.[32]
The chief focus, as with the committee report above, was to make the case for
the introduction of a student contribution to the cost of higher education,
based on an assessment of its private benefit. As higher education had been
largely free since 1974, this was a radical change.
Similarly, initial assessment of the 1989 higher education
reforms focussed on the principles involved: the introduction of a student
contribution, consolidation of institutions through mergers, and greater
ministerial involvement in policy making were all questioned.[33]
The long-term prospect of student debt was not considered.
What is the historical trend in
student loan debt?
The proportion of unpaid or outstanding student debt has increased
by 40% over the course of the HECS/HELP/TSL programs. As shown in Graph 1
below, for the first year it was measured, Debt Not Expected to be Repaid
(DNER) was assessed as 16.63% of the total of new HECS loans; in 2012–13, the
latest figure on record, it was 23.27% of new HELP loans.
Graph 1: Debt Not Expected to be
Repaid (DNER), Higher Education Contribution Scheme and Higher Education Loan
Programme, 1992–1993 onwards.
Source: Adapted from Department of Education and Training
(DET), Higher Education
Report 2011–2013, Table 54: Accumulated HELP debts and debt not
expected to be repaid 1989–90 to 2012–13, DET, [Canberra], 2014, p. 120.
The concern may be better understood through an
examination of the numbers: the amount of DNER has gone from an assessed $386
million in 1992–93 to $7,051 million in 2012–13: an increase of roughly 1800%.[34]
That’s within the context of a higher education system with an increase of more
than 1300% in the amount of HELP loans overall over the same time span, and an
increase of 165% in the number of domestic undergraduate students in the same
period.[35]
In short, the growth of DNER has outpaced both growth in HECS/HELP and government
funding for the higher education system overall.
In April 2014, the Grattan Institute released an analysis
of HELP debt, broken down into the characteristics of the students who were unlikely
to repay their loans in full.[36]
This analysis revealed that the increase in DNER is largely not due to overseas
debtors, the problem that these Bills are attempting to address, instead the
increase in DNER is largely due to patterns of workforce participation (certain
professions, as well as women generally, are likely to have interruptions to
employment), disparities in pay and the use of indexation factors which means
the compulsory income threshold rises more quickly than the indexation on HELP
debts.[37]
This can also be seen by a consideration of the fiscal impact – if DNER is most
recently estimated at $7,051 million in 2012–13 terms, and growing, recouping
$140 million through this measure over the next 10 years is not likely to make
a significant impact.
The trouble with world-first
solutions
Australia was the first country to design an
income-contingent loan scheme for higher education. At the time of its
introduction, it was viewed as an essential part of broader reform of the
sector – the then Minister, John Dawkins, stated that if HECS was rejected by
the Parliament, the Australian Government would be forced to reduce its
expenditure on higher education and curtail expanding the system.[38]
The implicit message in the introduction of HECS was that it allowed for costs
to be contained in the longer term, as students took on more of the cost of
their higher education. The Hawke Government could therefore afford to be more
generous in a funding scenario with HECS.[39]
To some extent, this has led to policy confusion: as HECS
was changed by various governments, then replaced by HELP, questions remain
about what the key aim of income-contingent loans schemes are. Should
the emphasis for a program like HECS/HELP/TSL be expanding student opportunity
or recouping student debt? If the former, then DNER isn’t a key concern as long
as any student gets access to higher education they otherwise might not. If the
latter, then some students should be excluded from the system, as they are
likely to add to the accumulated student loan debt.
Neither the original Higher Education Funding Act 1988
nor the Higher Education Support Act 2003 provide clear legislative
objectives in relation to their respective student loan schemes, which makes it
difficult to know whether governments should prioritise access over fiscal
sustainability. While DNER did reach 23.27% in 2012–13, this still meant that
the Australian Government was forecast to receive more than 75 cents of every
dollar it loaned out to students back. The problem is that without legislative
objectives or a thorough review of the program, governments don’t know whether
that constitutes success.
International examples
Since the introduction of HECS in 1989, both England and
New Zealand have introduced similar income‑contingent student loan
schemes.[40]
As both of these schemes are based on taxable income, like Australia, they both
have an issue when student debtors leave their respective countries for work
and pay tax overseas.
The English method for dealing with overseas debtors is
similar to that proposed for Australia, although there is more substantive
clarity over the notification requirements. Students living overseas for more
than three months need to send the Student Loan Company (the relevant statutory
authority in England which administers the loan program) documentary evidence
of how much they earn, or other evidence confirming they are able to support
themselves without working.[41]
Penalties can apply if the debtor does not provide this evidence, including a
requirement to repay the loan plus interest in a single lump sum, as well as
legal action.[42]
The Student Loan Company then calculates the debtor’s income in terms of pounds
sterling and calculates the required monthly repayment.[43]
The New Zealand system ditches income contingency for
administrative simplicity, by charging overseas graduates a flat fee based on
the level of the outstanding debt.[44]
This leads to some graduates paying more than they might in an income
contingent system (as applies to graduates who remain in New Zealand), with
some paying less.
The issue of overseas student debt is still current in
both countries. In New Zealand, the number of overseas student debtors increased
by 25.2% between 2012 and 2014.[45]
The New Zealand government has subsequently introduced a new penalty: debtors
with outstanding repayments can be prevented from leaving New Zealand again
after they return to visit family.[46]
In England, a quarter of overseas debtors were in default as of April 2013.[47]
Administrative arrangements
The Bills as drafted rely heavily on administrative
aspects for their function. This can be seen in the new notification
requirements, the new concept of ‘assessed worldwide income’ and the method of
currency conversion and in the acknowledgement of reciprocal tax arrangements.
Obligation to notify the
Commissioner of Taxation when leaving Australia
Proposed section 154-18 of the Higher Education
Support Act 2003 (HES Act) (at item 2 of Schedule 1 to
the Bill) and proposed section 47C of the Trade Support Loans Act 2014
(TSL Act) (at item 6 of Schedule 2) both require that HELP
and TSL debtors (respectively) who:
- have
an intention to remain outside of Australia for at least 183 days or
- have
been outside Australia for at least 183 days in any 12 month period
must notify the
Commissioner of Taxation (Commissioner):
- of
their departure no later than seven days after leaving Australia or
- no
later than seven days after the end of those 183 days (as the case may be)
- using
the approved form.[48]
In addition, proposed subsection 154-18(3) of the HES
Act (at item 2 of Schedule 1) and 47C(3) of the
TSL Act (at item 6 of Schedule 2) provide that foreign
residents with a HELP or TSL debt (respectively) must use an approved form to
notify the Commissioner of their annual income, including foreign-sourced
income, for the income year within the timeframe specified in the form.
Collectively, these proposed amendments seek to bring to
the attention of the ATO individuals who intend to, or currently reside
overseas with HELP or TSL debts. Identification of such individuals will
obviously assist the ATO in terms of targeting information exchanges with
foreign tax authorities, as well as resources for enforcement more generally.
Liability of overseas debtors to
make payments
Proposed section 154-16 of the HES Act and proposed
section 47A of the TSL Act provide a person:
- with
a HELP or TSL debt (respectively)
- who
is a foreign resident for the income year and
- whose
assessed worldwide income exceeds the minimum repayment income for the income
year
must make
repayments to the Commonwealth, via a levy.
As such, the above provisions impose the liability to make
repayments on overseas debtors.
Assessed worldwide income
Proposed subsections 154-17(1) of the HES Act (at
item 2 of Schedule 1) and 47B(1) of the TSL Act (at
item 6 of Schedule 2) both define a debtor’s ‘assessed worldwide
income’ as the sum of:
- the
person’s repayment income[49]
for the income year and
- the
person’s foreign-sourced income for the income year, converted into Australian
currency.
As a result, overseas debtors will be assessed on their global
income, and will be required to make repayments in Australian dollars, raising
the issue of currency conversion and fairness, discussed below.
Guidelines and currency conversion
and fairness
Proposed section 148–3 of the HES Act
(at item 1 of Schedule 1 to the Bill) and existing section 238-10
of the HES Act will empower the Minister to make Overseas Debtors
Repayment Guidelines in relation to certain matters as set out in the Bill. Proposed
subsection 154–17(2) states that these Guidelines ‘may provide for how to
work out a person’s foreign-sourced income ... including how to convert it into
Australian currency.’ The Bill is otherwise silent on how this may be achieved,
which gives the proposed Guidelines a particular importance from a practical
perspective. For the separate TSL scheme, proposed section 47B of
the TSL Act (at item 6 of Schedule 2) delegates
similar capacity for the rules under the current TSL Act.
Whether rules or Guidelines are used, converting income
earned overseas into Australian currency is the most fundamental aspect of
ensuring overseas debtors are treated equitably. Without examining the
as-yet-unwritten process, it is unclear as to how fairness will be preserved.
Australian student debtors have a level of certainty, knowing that changes in
their income will be taken into account over a given financial year. In
contrast, however, Australian foreign resident student debtors may find that,
due to the date on which the Guidelines or rules stipulate a currency
conversion, they may be liable for compulsory repayment because of the
variations in exchange rates. Will the processes attempt to take that into
account by stipulating an average exchange rate for a given period? It’s not
known at this point.
In the longer term, student debtors resident overseas may
be required to make repayments one year but not the next, even though their
overseas income has increased in real terms, because of currency exchange
fluctuations. Two student debtors could have entirely different experiences
dependent on whether they reside in Australia or overseas, despite similar
employment characteristics, qualifications and overall student debt. The
fairness of such distinct treatment is left unacknowledged by the policy
measure in these Bills.
However, a possible model is provided in subdivision 960C
of the Income Tax Assessment Act 1997 (ITAA 1997). Generally the ITAA
1997 provides that income paid in foreign currency is to be converted into
Australian currency at the exchange rate that was applicable when it was
derived.[50]
However, subsection 960-50(7) provides that Regulations may provide alternative
rules for income paid in foreign currency. In turn, those Regulations allow
certain tax payers to choose a period of no more than 12 months to which the
income relates, and use an average exchange rate over that period to convert
the currency into Australian dollars.[51]
If a similar approach was adopted in the Guidelines, it
would go some way towards ameliorating the fairness issue discussed above. This
would be especially true if the Guidelines allowed the HELP or TSL debtor to
elect to either use an average exchange rate over the relevant income year, or
to use the exchange rate in effect at the time a repayment is made (thus
allowing them to choose the most beneficial rate).
Reciprocal tax arrangements
As noted earlier in this Bills Digest, some of the initial
impetus for this policy change may have come from dialogue between the
Australian and United Kingdom governments, around better exchanging information
on each country’s outstanding student loan debtors.
Division 355 of Schedule 1 of the Taxation Administration
Act 1953 (TAA 1953) protects the confidentiality of taxpayer
information (protected information).[52]
It creates strict rules regarding the disclosure of protected information by
the Commissioner and taxation officials. In simple terms, disclosure of protected
information is only permitted where any privacy concerns are outweighed by the
public benefit of disclosures.
Subsection 355-25(1) of Schedule 1 of the TAA 1953
provides that it is an offence if a taxation officer discloses protected
information to another entity, including foreign governments. To be able to
disclose protected information, a taxation officer must rely on an exception
contained in Division 355 of Schedule 1 of the TAA 1953.
The amendments proposed by Schedule 4 of the Bill
would allow Australian tax officials to release information to foreign
governments, such as the United Kingdom or New Zealand, in order for them to
better identify their outstanding student debtors who now live and work in
Australia.[53]
Item 2 of Schedule 4 then provides that the changes would apply
to protected information regardless of when it came into existence.
The proposed reciprocal arrangement is a work in progress,
as there has been no record of any formal memorandum of understanding or
similar agreement between the two countries. This revised legislative framework
would support such arrangements, but their operation and extent is as yet
unclear. The Statement of Compatibility with Human Rights in the Explanatory
Memorandum argues that any impact on the right to privacy is proportionate,
given the offences and protections at Division 355 of Schedule 1 of the TAA
1953. [54]
Summary of the proposed compliance
regime
Provisions in Part 1 of Schedules 1 and 2 of the
Bill provide a new compliance regime which can be summarised as follows:
- mandatory
notification requirements applicable to HELP or TSL debtors who will, or
currently do, reside overseas
- providing
that a HELP or TSL debtor’s ‘assessed worldwide income’ includes their foreign
income, converted into Australia dollars
- a
requirement to make payment towards their HELP or TSL debt and
- the
application of existing taxation law penalties and shortfall interest where the
HELP or TSL debtor fails to make compulsory repayments.
Importantly, proposed section 154-90 of the HES
Act (at item 5 of Schedule 1) and proposed section 56A
of the TSL Act (at item 8 of Schedule 2) treat a
failure to provide the Taxation Commissioner with a notice relating to absence
from Australia and foreign income, as required under proposed section 154-18
of the HES Act and proposed section 47C of the TSL Act,
as a breach of a taxation law. This means that Part III of the Taxation
Administration Act 1953 may be applied in such cases, thus allowing fines to
be imposed where a HELP or TSL debtor fails to notify the Commissioner about
their absence from Australia or their foreign income. Where a HELP or TSL
debtor notifies the Commissioner they are absent from Australia, and then
refuses to make any assessed compulsory repayment, they will be subject to the
usual civil penalties associated with a failure to meet HELP or TSL repayment
obligations.[55]
This is similar to the English compliance regime which allows
for the imposition of higher interest rates in cases of students resident
overseas defaulting, rather the New Zealand regime which gives government
agencies the power to prevent New Zealanders from leaving the country again if
they have a long-standing unpaid student debt.[56]
While the effectiveness of these penalties is questionable, by increasing the
debt burden as the English system does, it has the potential to act as a clear
incentive to make repayments while outside the Australian tax system.
Both the Grattan Institute and Professor Bruce Chapman
recommended a New Zealand style compliance mechanism for the recovery of
outstanding student debt, with a minimum flat repayment paid by Australians
resident overseas, and some form of penalty interest applied to those who
default.[57]
Self-education expenses
Schedule 5 of the Bill contains amendments to various
tax laws that will ensure that overseas HELP or TSL debt repayments are not
allowable self-education expenses for Australian income tax purposes. Pages 28
to 29 of the Bill’s Explanatory Memorandum explain those amendments adequately.
Alternative approaches to student
loan debt
The then Minister indicated that the matter of Australian
student debtors resident overseas is an issue both of fiscal sustainability and
equity.[58]
But, as previously noted, the student loan debt held by Australian residents
overseas is a tiny proportion of the outstanding student debt burden. In
analysing the current student debt load, the Grattan Institute highlighted a
number of reforms in its Doubtful Debt report which would make more of
an impact to the debt levels of programs like HELP and TSL.[59]
This included lowering the income threshold for compulsory repayment, changing
the indexation of the income threshold, and ending the write-off of student
debt upon death.
If there is a ‘serious’ problem with outstanding student
debt, these reforms would be far more likely to make a significant impact. In a
policy context without clarity over whether programs such as HELP should
prioritise access or sustainability, an important signal may be found in how those
more substantive reforms have not yet been implemented.
Is outstanding student loan debt inherently bad? Reforms to
student loans programs such as HELP often fail to address that fundamental
question. The choice for the policy makers in 1989 was not between a scheme
which ensured outstanding debt was fully repaid and one that did not, but
between a fully subsidised higher education system that was increasingly
costly, and a system where most students contributed in some way to the overall
expenditure by government on higher education. Any proportion of student
repayment could be seen to be an improvement on a fully subsidised system, even
if HECS (later HELP and TSL) doesn’t recoup all outstanding student debt.
Without clarity in the system such as legislated
objectives or existing benchmarks, it’s difficult to know what governments
should be aiming for. We don’t know if these reforms constitute the closing of
an unfortunate loophole that has existed since 1989, or a futile attempt to
reduce an overflowing level of student debt—to bail out a flood with a teacup,
as it were. Both interpretations are valid. If access is the point of HELP and
TSL loans, then concerns regarding sustainability can stop as this inequitable provision
has been addressed; if the cost to government of providing these loans is the
main focus, then further reforms will be needed. Governments being clear on
what they expect student loans to provide and how they expect them to work
would benefit students, education institutions and policy administrators in the
long run.
Further, it isn’t clear that existing systems to recoup
outstanding overseas student debt have worked internationally, and these are in
countries where the obligation to repay if you go overseas is a long standing
matter of policy. These Bills create a whole new obligation, so part of the task
will be in creating a cultural shift in Australian students’ attitudes.
Delegating the administrative details of how outstanding debt will be recouped
to guidelines and rules also makes it difficult to assess their effectiveness,
and to allow scrutiny of how students will be able to appeal or contest any
administrative decisions involved, as well as safeguard their privacy.
Governments have an incentive to reduce outstanding debt
and ensure that student loans are repaid, but the policy trade-off in these
Bills could make it less likely for students to go overseas for work and other
experiences that may enrich them personally and extend their broader skills and
networks.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Higher Education Support
Act 2003 and Trade
Support Loans Act 2014, both accessed 3 November 2015.
[2]. See:
proposed subsection 154-17(1) of the Higher Education Support Act
2003, at item 2 of Schedule 1 to the Bill; and proposed
subsection 47B(1) of the Trade Support Loans Act 2014, at item
6 of Schedule 2.
[3]. See:
proposed subsection 154-17(2) of the Higher Education Support Act
2003, at item 2 of Schedule 1 to the Bill and proposed
subsection 47B(2) of the Trade Support Loans Act 2014, at
item 6 of Schedule 2. See also Higher Education Support
Act 2003, subsection 238-10(1), as amended by item 6 of Schedule
1 to the Bill and Trade
Support Loans Act 2014, section 106.
[4]. Constitution,
accessed 3 November 2015.
[5]. J
Marszalek, ‘Move
to claw back expats’ uni debt’, The Advertiser, 10 June 2014, p. 6,
accessed 29 September 2015.
[6]. See
comments in M Knott, ‘Graduates
abroad should repay HECS, sector says’, The Sydney Morning Herald, 5
August 2014, p. 7, accessed 29 September 2015.
[7]. Ibid.
[8]. C
Pyne (Minister for Education and Training), New
plan to recover HECS debt from Aussies living abroad, media release, 2
May 2015, accessed 29 September 2015.
[9]. Australian
Government, ‘Part 1. Revenue measures’, Budget
measures: budget paper no. 2: 2015–16, p. 9, accessed 29 September
2015.
[10]. Senate
Standing Committee for the Scrutiny of Bills, Alert
digest, 11, 2015, The Senate, accessed 22 October 2015.
[11]. Ibid.,
p. 7.
[12]. Ibid.,
p. 35.
[13]. K
Carr (Shadow Minister for Higher Education, Research, Innovation and Industry),
HECS
crackdown—here we go again, media release, 2 May 2015,
accessed 29 September 2015.
[14]. Ibid.
[15]. A
Rishworth, ‘Second
reading speech: Education Legislation Amendment (Overseas Debt Recovery) Bill
2015, Student Loans (Overseas Debtors Repayment Levy) Bill 2015’, House of
Representatives, Hansard, 15 October 2015, p. 21, accessed 9 November
2015.
[16]. See
P Coorey, ‘University
deregulation looks doomed’, The Australian Financial Review, 15
March 2015, p. 4, accessed 29 September 2015.
[17]. L
Rhiannon, Pyne’s
copy and paste budget fails students, staff and the community, media
release, 13 May 2015, accessed 20 October 2015.
[18]. See
comments in Universities Australia, Government
move to recoup overseas HELP debt overdue, media release, 7 May 2015,
accessed 29 September 2015.
[19]. Group
of Eight, Hidden
behind all the hyperbole – cutting research funds is a step too far,
media release, 13 May 2015, accessed 30 September 2015.
[20]. See:
Innovative Research Universities (IRU), 2015
Budget holding pattern: the long road to sustainable reform, IRU
statement 04/2015, 12 May 2015; and Regional Universities Network, 2015 Budget – some
positives, but uncertainty remains, media release, 12 May 2015, all
accessed 30 September 2015.
[21]. See
NUS, Pyne
no ‘fixer’ this budget, media release, 12 May 2015; and NUS, Budget
has no vision for students, media release, 12 May 2015; and CAPA, No
more fair go; universities just for the wealthy and privileged, media
release, 13 May 2015; CAPA, Postgraduate
students voice their concerns about the Federal Budget, media release,
13 May 2015; and CAPA, Cuts
to research training threaten future of research workforce, media
release, 13 May 2015, all accessed 30 September 2015.
[22]. NTEU,
More
of the same from an arrogant government that refuses to listen, media
release, 12 May 2015, accessed 30 September 2015.
[23]. Explanatory
Memorandum, Education Legislation Amendment (Overseas Debt Recovery) Bill
2015, p. 3.
[24]. Australian
Government, ‘Part 1. Revenue measures’, Budget
measures: budget paper no. 2: 2015–16, , op. cit.
[25]. The
Statements of Compatibility with Human Rights can be found at page 4 of the
Explanatory Memorandum to the Bill and page 3 of the Explanatory Memorandum to
the Levy Bill.
[26]. Parliamentary
Joint Committee on Human Rights, Twenty-ninth
report of the 44th Parliament, October 2015, p. 2 [para 1.8], accessed
3 November 2015.
[27]. See
A Contractor, ‘Nelson’s
sales pitch: students to owe billions’, The Sydney Morning Herald,
17 May 2003, p. 10, B O’Keefe, ‘Student
HELP debt rises to $13bn,’ The Australian, 8 November 2006, p. 26; L
Anderson, ‘$720m
owed by students’, The Adelaide Advertiser, 12 June 2007, p. 13; S
Lewis and J Dillon, ‘Call
to cap uni students’ debt splurge’, Hobart Mercury, 17 January 2011,
p. 2; B McDougall and K Danks, ‘Uni
students owe $23b’, The Daily Telegraph, 16 July 2012, p. 5; A
Trounson and C Kerr, ‘Lost
HECS debt $6.2bn, and rising’, The Australian,
21 January 2013, pp. 1-2; S Martin, ‘Irretrievable
student loans to exceed $11bn’, The Australian, 29 December 2014, p.
4; J Hare, ‘Runaway
loans: students set to owe $70bn’, The Australian, 15 April 2015, pp.
1 and 4, all accessed 23 October 2015.
[28]. Department
of Education, Science and Training, ‘Table 46: Accumulated HECS/HELP debts and
debt expected not to be repaid’, Higher Education Report 2005, p. 82.
Electronic copy not available.
[29]. See
Australian Government, ‘Programme 2.4: Higher Education Loan Programme’, Portfolio budget statements
2015–16: budget related paper no. 1.5: Education and Training Portfolio,
p. 50, accessed 6 October 2015.
[30]. Higher Education Support
Act 2003 (Cth), section 137–20, accessed 6 October 2015.
[31]. N
Wran (Chairman), Report of the Committee on Higher Education Funding,
The Committee, Canberra, April 1988, p. 57, accessed 6 October 2015. Electronic
copy not available.
[32]. See
J Dawkins, ‘Second
reading speech: Higher Education Funding Bill 1988’, House of
Representatives, Debates, 3 November 1988, p. 2401; Explanatory
Memorandum and Supplementary Exploratory Memoranda, Higher Education
Funding Bill 1988, both accessed 6 October 2015.
[33]. See
P Karmel, Reflections on a revolution: Australian higher education in 1989,
AVCC papers no. 1, Australian Vice-Chancellors’ Committee, Canberra, 1989.
Electronic copy not available.
[34]. Department
of Education and Training (DET), Higher education report
2011–2013, Table 54: accumulated HELP debts and debt not expected to be
repaid 1989–90 to 2012–13, DET, [Canberra], 2014, p. 120, accessed 22 October
2015.
[35]. Ibid:
accumulated HELP debts grew from $2,321m in 1992–93 to $30,299m in 2012–13;
non-overseas (domestic) student numbers sourced from the Higher Education Statistics
collection, using 1992 and 2012 as the reference years.
[36]. A
Norton and I Cherastidtham, Doubtful
debt: the rising cost of student loans, Grattan Institute report,
2014-7, Grattan Institute, [Melbourne], April 2014, accessed 29 September 2015.
[37]. Ibid.
[38]. J
Dawkins, ‘Second
reading speech: Higher Education Funding Bill 1988’, House of
Representatives, Debates, 3 November 1988, p. 2401, accessed 6 October
2015.
[39]. Ibid;
the Higher Education Funding Bill 1988 as presented to Parliament included an
alternative funding scenario in which the HECS scheme was rejected by the
Parliament. This would have seen less funding provided to higher education
institutions and fewer places than otherwise proposed.
[40]. In
the United Kingdom, they are known as ‘student loans’ and administered through
the Student Loans Company, a corporation
initially set up through the Education
(Student Loans) Act 1990 (UK). Student loans initially operated
from 1989 on a basis similar to mortgage loans; income contingency was
introduced in the 1998/1999 academic year. Due to the devolved nature of
education policy in the United Kingdom, student loan settings are different in
England, Wales, Scotland and Northern Ireland. In New Zealand, the ‘student
loans scheme’ was phased in from 1992 and has always worked on an
income-contingent basis. It is jointly administered by their Inland Revenue
service (equivalent to the ATO), the Ministry of Education, and the Ministry of
Social Development. Annual reports are available
on the outcomes of the scheme.
[41]. See
Student Loans Company (SLC), ‘How
repayment works’, SLC website, accessed 6 October 2015.
[42]. Unlike
HECS, HELP and TSL loans, English student loans now charge real interest rates
of up to 3% above inflation. See Student Finance England, Student
loans – a guide to terms and conditions 2015/16, p. 12, accessed 6
October 2015.
[43]. Ibid.
[44]. Taken
from Norton and Cherastidtham, op. cit., p. 32.
[45]. Ministry
of Education (NZ), Student
Loan Scheme – Annual Report 2013/14, published Decmeber 2014, p. 33,
accessed 10 November 2015.
[46]. See
New Zealand Inland Revenue, ‘Repayment
obligations for overseas-based borrowers’, Inland Revenue website, 16 March
2015, accessed 6 October 2015.
[47]. See
Student Loan Company data, quoted in Norton and Cherastidtham, op. cit., p. 32,
accessed 7 October 2015.
[48]. Higher Education Support
Act 2003 and Trade
Support Loans Act 2014, both accessed 3 November 2015.
[49]. This
is defined in section 154-5 of the Higher Education Support Act 2003 as
the sum of a person’s taxable income, total net investment loss (within the
meaning of the Income Tax Assessment Act 1997), the total of any
reportable fringe benefits, exempt foreign income for the income year and
reportable superannuation contributions (within the meaning of the Income
Tax Assessment Act 1997) for the income year.
[50]. See
for example: table item 6 of subsection 960-50(6) of the Income Tax Assessment
Act 1997, accessed 3 November 2015.
[51]. See
for example: Income Tax
Assessment Regulations 1997, Schedule 2, regulation 1.3, accessed 3
November 2015.
[52]. Taxation Administration
Act 1953, subsection 355-30(1) provides that protected
information is information that relates to the affairs of an entity, was
obtained under or for the purposes of a taxation law, and which identifies or
is reasonably capable of identifying the entity. It therefore includes the
types of information dealt with by the Bill, accessed 3 November 2015.
[53]. See:
proposed subsection 355-65(8) of Schedule 1 of the TAA 1953, at item
1 of Schedule 4 to the Bill.
[54]. Explanatory
Memorandum, Education Legislation Amendment (Overseas Debt Recovery) Bill
2015, pp. 5-6.
[55]. See:
Higher Education Support Act 2003, sections 154-60 and 154-65; Trade
Support Loans Act 2014, sections 53 and 54; and Parts 4-15 and 4-25 of Schedule 1 of the Taxation
Administration Act 1953 generally (imposes fines, penalties and shortfall
interest for failure to pay income tax).
[56]. See
Student Finance England, op. cit., p. 12: ‘You’ll be charged RPI+3% [an
interest rate of inflation plus 3% on your debt] until you get in touch with
us’, and Inland Revenue (New Zealand), op. cit.
[57]. See
Norton and Cherastidtham, op. cit, p. 35, and B Chapman as quoted in M Knott, op.
cit., accessed 7 October 2015.
[58]. See
C Pyne, ‘Second
reading speech: Education Legislation Amendment (Overseas Debt Recovery) Bill
2015’, House of Representatives, Debates, 17 September 2015, p.
10523, accessed 7 October 2015.
[59]. Norton
and Cherastidtham, op. cit.
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