Posts Tagged‘hecs’

Labor’s Future Tech Policy Key to Australia’s Silicon Valley.

Starting a company in Australia, especially one that’s in the high tech industry, is much harder than it is in many other places in the world. This used to be due to a lack of supporting infrastructure, what with Australia’s remoteness precluding the required investment, however in more recent times that barrier has begun to melt away. The problem many startups face in Australia is that acquiring funding is extremely problematic as Australia’s risk averse investing style has meant that our large capital reserves aren’t used to invest in such ventures. Previous governments haven’t done much to change this, preferring to support already established businesses, however in his recent budget response Bill Shorten showed vision that few of his contemporaries have in the form of the Labor’s future technology policy.

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At the core of this policy is the Smart Investment Fund, a $500 million allocation that will be used in partnership with venture capital firms and banks to facilitate more investment in early stage startups. I have spoken previously about how something of this nature would be required  in order to kick start a Silicon Valley equivalent here in Australia and the policy that Bill Shorten has proposed lines up with that idea perfectly. Whilst startup investment can never be made risk free making them more attractive, through direct government investment and the partial loan guarantee with banks, will ensure that more of Australia’s capital makes its way into new businesses rather than the traditional investment vehicles.

Of course providing funding for such ideas is only one piece of the puzzle as we’ll need to encourage students to pursue careers in those industries. To this end Labor as put forward a policy to provide numerous scholarships to students who complete degrees in the fields of science, technology, engineering and mathematics (STEM) and then go on to become teachers in their fields. In addition to this Labor is proposing to forgive the HECS/HELP debts of almost 100,000 students studying in this field, something which could provide an incredible leg up for fresh graduates starting their career. Considering that 75% of the fastest growing new jobs are within these fields encouraging students to take up careers is an incredibly smart move and one that the current government should look at adopting.

You might be surprised to hear this but I’m on the fence about coding being added to the national curriculum, mostly because I’m not sure how it’d end up being implemented at the school level. Starting out in coding isn’t the most exciting of adventures and the rote learning approach which many schools use would, I feel, end up with them becoming bored and frustrated rather than energized and intrigued. Of course I’m not a teacher and I’m sure there are many who are more experienced in this field who could design programs that tackled this issue properly. In the end this is something that I’d have to see in action before I could form a solid opinion on it as whilst I’m all for kids being aware of how technology works I also know how quickly they can become bored with such things.

This is what the Australian public needs to see from a party in opposition: clear concise policies that show a valid course of action rather than mud slinging and point wining which have plagued Australian politics for the last 3 terms of government. Whilst these policies might not ever see the light of day it’s good to see that the Labor party is thinking along this direction and hopefully such policies will fuel their campaign come next election. I can only hope that the Liberals take note as whilst any incumbent would loathe to agree with their opposition it’s hard to deny just how solid some of these ideas are.

Don’t Sell Off Student Debt You Dolts.

If it wasn’t for the HECS/HELP system I definitely wouldn’t be in the position that I am today. Whilst I didn’t come from an exactly poor family we were definitely on the lower end of the middle class and the prospect of going to uni meant that I’d have to start paying my way. Thankfully I was able to defer my HECS debt until I was able to pay it back through tax allowing me to attend university without having to fork out the $25,000 or so which I simply did not have. After 4 years of an accelerated career that was directly attributable to my university experience the debt was fully repaid back to the Australian government with a little bit of inflation added on top for good measure.

refugees2In other countries this same situation probably wouldn’t have been possible. In the USA for instance I would have had to secure a student loan with a bank, something that probably would have seen me paying exorbitant interest rates on top the much higher cost of education. Even if the loan amount remained the same I would’ve been repaying the debt for at least another year just because of interest and I would have been much less inclined to take the risks that I did knowing that I’d have to make those monthly repayments regardless of my current employment situation. The couple percent interest I paid on my HELP debt to curb the deflation on the debt seems like nothing in comparison to that.

The difference between the two systems is the motive behind the loans. HECS/HELP is made by the government to encourage people to go into higher education in the hopes that, because of said education, they will get higher paying jobs and will then be able to contribute more to the economy as well as repaying their debt. Loans made by banks on the other hand, regardless of their intended purpose, are done purely for the motive of generating a profit and they will do anything to maximise the return on them as such. This is why the Liberal’s proposal to securitise (read: sell off) student debt is an inherently bad move.

Should such a deal go down the government would likely have to sell the debt for a fraction of its current value, usually on the order of 40%~60%. This would mean an instant cash windfall of approximately $11 billion or so with the annuity streams being collected by the new owners of the debt. If your government is strapped for cash (which we really aren’t at the moment) then this would seem like a good move however it would only account for 3% of our total budget and only for the year in which it happened. For comparison HECS/HELP revenue was around $1.4 billion back in 2009/2010 financial year meaning that the $11 billion windfall would become a shortfall in 8 years (probably less considering that repayment rates would have likely increased in the interim). It’s a short term cash grab that will make the budget its in look a lot better but at the cost of making every budget that follows it look a lot worse.

The real problem though is the transfer of government owned debt to a private company, one that will inevitably look to make the most out of their investment. Whilst HECS/HELP is one of the few things you can’t discharge through bankruptcy you’re under no obligation to repay it should you not have the means to, a key to encouraging people to at least attempt higher education to further their careers. Should the debt be owned by a bank however there’s no guarantees that the same structures will hold and it’s almost inevitable that the banks would look to squeeze delinquent loans for all they’re worth. Don’t believe me? Just look at the student loan situation in the USA.

Whilst the Liberals may have said that such a plan is not current policy the fact that it’s under consideration should ring alarm bells. It’s an incredibly short sighted move, one that favours short term gains over long term losses which is something that a “fiscally responsible” government should be doing everything to avoid. Selling off national assets, especially one that provides as much value as HECS/HELP does, will only hurt us in the long term no matter how warm and fuzzy running a surplus makes you feel now.

 

The Sound Economics of Australia’s Education System.

Australia has one of the best education systems available as evidence by our top 10 rankings for literacy, science and mathematics as well as our overall education index of 0.993, tying us for first place with countries like Denmark and Finland. While our system isn’t exactly unique in its implementation I do believe schemes like HECS/HELP are one of the main reasons that the majority of Australians now pursue tertiary education and whilst this might bring about other issues (like a lack of people in trades) it’s clear that benefits far outweigh the costs. Indeed as someone who couldn’t have afforded university without the help of the government and now has a great career to show for it I’m something of a testament to that idea.

Recently however there’s been some criticism of the HECS-HELP system, mostly focused on the amount of student debt owing to the government and the sizeable chunk of that which is never expected to be repaid:

The Grattan Institute’s annual Mapping Australian Higher Education report finds that students and former students have accumulated HECS-HELP debts of $26.3 billion.

This is about an extra $10 billion owing, in real terms, than in 2007.

The interest bill on the income-contingent loan scheme, formerly known as HECS, is nearly $600 million a year, the institute estimates.

And it says HELP debt not expected to be repaid rose to $6.2 billion in 2012.

The report makes for some intriguing reading and does indeed state that there’s a good 25% or so of the current student debt that’s likely to never be repaid. The reasons behind it though are interesting as whilst some would have you think that it’s due to students skipping out on their debts in way or another (ala Liberal MP Steve Ciobo) it’s in fact primarily due to students either dying or moving overseas. Now there’s not a whole lot we can do about the former (except maybe investing more in the health care sector) but the latter is a problem that’s been around for decades and I’ve yet to see a solution proposed, either from the government or the private sector.

Australian graduates, especially in some sectors, suffer from a distinct lack of choice when it comes to finally finding a career once they’re done with their university studies. Whilst I might have managed to make a decent career without looking too far you have to appreciate the fact that my degree isn’t in IT, it’s in engineering, and such is the case for many graduates who try to find something in their chosen path. Usually they can get close but the chances of landing an opportunity directly in their field of study are usually pretty slim and that leads them to look overseas. I myself did exactly that not too long after I graduated and was pretty staggered at the number of opportunities available abroad that I was more than qualified for.

HELP Debt outstanding 1989 to 2011

Another point that the report makes is that student debt is seemingly sky rocketing when compared decades prior. The graph above demonstrates that quite clearly but it doesn’t give you any indication as to why this is happening. For starters Australia’s population has increased by about 5.8 million in since 1989 or about 35%. At the same time participation in tertiary education has well over doubled in this time with the vast majority having some form of tertiary qualification and  27% of all Australians now carrying a bachelor’s degree or higher. Essentially there’s been a major cultural shift over the past 2 decades towards pursuing an education through universities rather than other avenues and this is what is responsible for the increase we’ve seen. This isn’t exactly an issue considering our GDP has quadrupled in the same time frame and whilst I won’t say there’s a causative link there I’d say you’d be hard pressed to uncouple higher education rates from improved GDP figures.

Realistically the issue of unpaid student debts isn’t much of an issue for the Australian government considering the wide reaching benefits that our high quality and freely available education system gives us. We still need to do something about our best and brightest moving overseas to greener pastures but it’s clear that the economic benefits of free education for anyone who wants it vastly outweighs the cost of providing it. Even if we were to erase all student debt in one year it would still be only a few percent of the total budget, something that could be easily done should there be any burning need for it to happen. There isn’t of course since the cost of servicing that debt is so low (comparatively) and there are much better things to spend that money on.