We have a fairly low opinion of Stuff on The BFD, but their latest offering reaches a profoundly new low. For reasons I simply cannot fathom, the media, and Stuff in particular, seem to be coming down on the side of student loan shirkers, particularly those who live overseas. I do not understand this. Every student who takes out a student loan knows that it has to be paid back. Every student who goes overseas while they have an outstanding student loan knows that interest will be charged. This assumes that those graduates who go overseas will earn more, and will be able to fund their student loan repayments. The system also deliberately favours those who choose to stay in New Zealand, and rightly so. Everyone who signs up to it knows what they are getting into.
But wait until you read this little gem.
Government policy towards student borrowers and young people in general makes so little sense that one of the most rational things to do would be to leave the country.
Why exactly the writer is advocating that graduates go overseas in the midst of a skills shortage here at home is anyone’s guess.
Student loan repayments are made to the IRD at the rate of 12 per cent of every dollar earned over the repayment threshold of $19,760
Yep. Loan repayments are collected by IRD.
This tax is paid in addition to any other income tax charged to the student.
Just a minute. Student loan repayments are not a tax. They are loan repayments. Graduates are allowed to pay off their loans using the tax system as a repayment vehicle only. They can pay off more debt any time, by the way.
The effective total tax rate on this income is 19 per cent. People with a student loan will pay an additional 12 per cent to IRD on every dollar they earn over the repayment threshold. All up, in this case, the debtor will pay $19,000 in tax, putting their effective total tax rate at roughly 28 per cent.
No, no, no, no, no. This is total and complete garbage. Graduates do not pay an effective 28% tax rate. They pay the applicable tax rate on their income, plus the required minimum student loan repayments that they signed up for, and agreed to repay.
Where does Stuff get these ignoramuses from?
To put that into perspective, someone without a student loan would need to be earning roughly as much as Cabinet ministers ($296,000) before they paid the same rate of tax (30 per cent).
People who earn over $48,000 pay 30% tax on their income over $48,000 (up to $70,000, after which the tax rate is 33%). Income taxes are graduated. Student loan repayments are not. That is because student loan repayments are not tax payments. We are comparing apples with uglifruit here.
And now it gets REALLY silly.
Remember too that people in these higher income brackets are more likely to be buying and selling property, an activity for which they will pay almost no tax at all.
The small number of people who are subject to a tax on their property sales often don’t bother to pay it.
Well, what did you expect? An article on taxation that DOESN’T mention those mean, nasty, ugly property investors?
IRD data shows people subject to the bright line test on properties resold within five years of purchase (excluding the family home) comply with the law in much smaller numbers than do students.
An IRD audit found a full 27 per cent of people failed to pay the tax in the 2016 tax year.
Sigh… well, first of all, let us get some facts straight. The Bright Line Test period was increased from 2 years to 5 years in March 2018 so in 2016, those affected only had to have held their properties for less than 2 years. I mention that purely for accuracy and perspective.
The problem with the Bright Line Test is that a lot of people do not realise that it applies to them. Those who seek the advice of accountants will normally be put on the right track (that was a nice little plug), but for those selling a holiday home or a rental property, it will often never occur to them that they will be taxed on the sale. The Bright Line Test was introduced in 2015 to dampen down speculation in the overheated Auckland property market. Someone buying a holiday home in Foxton and then selling it will probably not even consider that the profit on the property sale might be taxable, because it was always a private transaction. These people are not tax evaders, as is being implied. They simply didn’t realise the tax might apply to them.
Lawyers are supposed to charge withholding tax on property sales where the Bright Line Test applies, but often they fail to do this, as so many of their property transactions are for private housing. This is another reason why many people fail to realise they may be taxed on the sale of a property.
THe voluntary non-compliance rate for the bright line test in 2017 was 71 per cent – that means 71 per cent of people didn’t pay the tax until IRD chased them up.
As I said, most of them will not have realised they owed tax. These people will have paid penalties and interest on their unpaid tax though.
Set that against students. IRD data shows that nearly all of the student debtors it considered to be “overdue” are overseas, and roughly half of overseas-based borrowers are not taking “positive actions” towards repaying their loans.
It sounds like a lot, but overseas borrowers make up just 15 per cent of all student borrowers. If half of them are non-compliant, that would put the compliance rate at about 7 per cent, with some headroom for the small number of domestic loan truants. That’s just a fraction of the non-compliance rate for property speculators caught by the bright line test, begging the question: where are the calls to arrest dodgy property speculators?
Yes, very clever to use percentages but not reveal the actual numbers. Newshub reports that 70,000 overseas-based borrowers are in default. The amount in dollars is estimated to be $3.4 billion. Think of the infrastructure projects that could be funded with that. By contrast, IRD is chasing about $80 million in taxes owed by property speculators, including those liable under the Bright Line Test. Not an insignificant sum, but to imply that students are being treated unfairly while property speculators are the big bad wolf is nothing short of fiction. And terribly poor journalism.
Well, I’m sure I’ve bored you all enough with my Taxation 101 seminar, but I really wanted to highlight the appalling quality of journalism coming out of Stuff these days. Even opinion pieces are supposed to have some basis in fact. These days, Stuff journalists simply make things up to fit in with their agenda.
Let’s leave the last word to the journalist, Thomas Coughlan, who wrote this dreadful article.
It’s no surprise then that this borrower saw a bright future overseas – like a true Homo economicus she saw a brighter future outside New Zealand. It appears the only mistake she made was coming home.
Stuff.
Not at all. The only mistake she made was in taking on an obligation that she now thinks she should not be held to. Try doing that with a bank loan. The consequences will be considerably worse.
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