Nature of Loans scheme

Keith Ng makes the very insightful point that Labour’s announced loan changes will mean “it’s no longer a loan, it’s more like a universal allowance on one end and a 10% graduate tax on the other, with how much you take affecting how much you pay”.

This is very much correct. And it is something people may want to reflect on also. I’ll do something in more detail on this, but people may want to reflect for now how the proposed changes will affect them in the next few years. If you were projected to pay off your loan in 11 years, and now it will be paid off in nine years, what it means is this:

For the next nine years, you will not be one cent better off. You will pay the exact same amount as you do now, as compulsory repayments. It is only after nine years that your repayments will stop early and you will have a 10% drop in your effective tax rate (on income above $17K) two years earlier than otherwise would be the case.

And think about how much money you may be earning in nine years time, and whether a 10% tax drop for two years is better than say a permament 5% tax drop? Yes I am going to do some interesting calculations on this.

[Deleted para on National’s tax rebates being paid annually, as Jordan has pointed out they are just credited against loan balance also]