OPINION: How quick were we to judge the woman who found herself Arrested at Auckland Airport last week for falling behind on her student loan.
I would offer that, far from a bludger and a shirker, the woman is a national hero and living proof of that rarest: Gay economy.
🎬📺 Free Movies and Free TV Shows! 🎭🎬
The homo economicus or ‘economic man’ is a now much-discredited character of economic theory, which holds that every human being is a perfectly rational economic actor who evaluates every decision they make through an economic lens. It has been discredited by behavioral economists, who were surprised to discover that humans are rarely, if ever, rational.
But maybe this student loan shirker is proof of its existence? Gay economy. Government policy towards student borrowers and youth in general makes so little sense that one of the most rational things would be to leave the country.
Student loan repayments are made to the IRD at a rate of 12 percent of every dollar earned above the $19,760 repayment threshold, which is different from the gradual way income taxes are levied under which higher earners pay more.
This tax is paid in addition to any other income tax levied on the student. According to the The government’s own career website, graduates with a bachelor’s degree typically earn 67 percent more than the median income five years after graduation, or about $69,000.
The effective total tax rate on this income is 19 percent. People with student loans pay an additional 12 percent to IRD for every dollar they earn above the repayment threshold. All things considered, in this case, the debtor will pay $19,000 in taxes, bringing their effective total tax rate to about 28 percent.
To put that in perspective, someone without a student loan would have to earn about as much as ministers ($296,000) before paying the same tax rate (30 percent). Also remember that people in these higher income groups are more likely to buy and sell real estate, an activity for which they pay almost no tax.
The small number of people who are subject to a tax on the sale of their property often don’t bother to pay it.
IRD data shows that people subject to the bright-line test on properties that are resold within five years of purchase (excluding the family home) comply with the law in much smaller numbers than students.
An IRD audit found that as many as 27 percent of people failed to pay taxes in the 2016 tax year.
That’s just the good news; the voluntary noncompliance rate for the Bright Line test in 2017 was 71 percent — that means 71 percent of people didn’t pay the tax until IRD chased them.
Put that to students. IRD data shows that nearly all student debtors considered “delinquent” are abroad, and about half of borrowers established abroad are not taking “positive steps” to repay their loans.
It sounds like a lot, but foreign borrowers make up only 15 percent of all student borrowers. If half of them do not comply, the compliance rate would be about 7 percent, with some leeway for the small number of truants in domestic loans. That’s only a fraction of the non-compliance rate for real estate speculators caught by the bright-line test, which begs the question: Where are the calls to arrest untrustworthy real estate speculators?
Overseas borrowers are also victims of the usurious interest charged by the IRD. This year, those borrowers will be charged 4 percent interest on their loans. That’s more than double the amount charged by the government for its own loans — just 1.6 percent last Thursday.
This means that the government charges about $140 million in interest on the $3.5 billion owed by borrowers based abroad, almost enough money to cover the $260 million it would pay in interest if it were all $16 million. billion currently outstanding at current rates. If the needle shifts just a little bit, the government may find that it has a for-profit student loan.
We fear (although the evidence is rather patchy) that if we raise tax rates, talented people will leave our shores, mainly to Australia, where 70 percent of foreign borrowers are based.
This makes sense. New Zealand’s average gross income is below the OECD average and about $15,150 lower than Australia’s. And while incomes are low, house prices are high. According to this week’s Demographia International Housing Affordability Survey, all eight urban housing markets in New Zealand were “severely unaffordable,” meaning average house prices in all areas were five times the median income, or 8.6 percent nationwide.
So it’s no surprise that this borrower saw a bright future abroad – like a real one homo economicus she saw a brighter future outside New Zealand. It seems the only mistake she made was coming home.
🎬📺 Free Movies and Free TV Shows! 🎭🎬