Budget 2025: Economists split over Government's student loan move
For the 2025–26 tax year, borrowers need to pay 12 cents of every dollar they earn over $24,128 to Inland Revenue (IRD) in loan repayments.
If the student loan repayment threshold doesn't rise with inflation, people make more repayments as their income increases, despite not necessarily being better off.
Economist and associate professor at the University of Auckland Susan St John said the threshold was far too low and would affect people on very low incomes, many who already struggle to support themselves.
'It is so egregious because it is so low it even captures some people on benefits. It's a 12% tax, there is no other way to describe it.
'If they really wanted (to be) economic, they would look at writing parts of student loan repayments off for those who stay in New Zealand.'
St John said the threshold freeze also needed to take into account other announcements in Budget 2025 that affected New Zealanders' bank accounts, like halving contributions to people's KiwiSaver accounts.
Freezing or raising the threshold has been a point of contention between Labour and National over the years with National tending to freeze it and Labour often opting to increase it.
Previous reporting from the NZ Herald delved into this see-sawing. The Key Government froze the threshold in the 2010-11 tax year, lifting it only in the 2017-18 tax year.
The Ardern Government lifted the threshold each year, adjusting it upwards to account for most inflation.
Principal Infometrics economist Brad Olsen said it was better to inflation-adjust things but, since many were already adjusted, not doing this one was 'not as big of an issue'.
'It's clearly a change. For some of those on the margin that were earning at effectively lower levels, they'll start to be caught by needing to repay but that is effectively the obligation that borrowers have with the Government.
'The fact that over time it effectively will be a lot more people starting to pay or needing to pay, I think that is reasonable. You're getting an interest-free student loan from the government, once you start to earn that level of money, it's reasonable that you start to repay.'
According to previous Herald reporting, if the threshold had not been frozen in 2010-11 and had risen with inflation each year since, it would be about $27,499, saving borrowers about $404.50 a year.
The change is expected to impact about 370,000 New Zealand-based borrowers, costing an additional $1.20 a week on average in repayments than had the threshold been adjusted for inflation.
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