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Intergenerational theft

Written By: - Date published: 7:59 am, October 18th, 2009 - 43 comments
Categories: education, Social issues - Tags: ,

intergenerational theftI had a free education. Most of the politicians in this and recent parliaments had a free education. More recent students have not been so lucky. Student loans are a 10 Billion dollar burden on the young. It’s crazy – the state spends all this money to educate people in NZ, and as part of the process creates huge incentives for them to take their expensive education away overseas to earn higher wages to repay their debt, or perhaps to simply escape their debt and never return. Young Kiwis have always been travellers, have always left to see the world, we didn’t need to create any more reasons for them never to come back.

It started in 1990 when the Labour government (stupidly!) increased student fees from the existing nominal $200 to $1,250 pa. It was election year, and National’s spokesperson on education, one Lockwood Smith, promised to abolish the fees, and famously signed a pledge to resign from parliament as minister if National broke this promise. National won the election and instead of abolishing the fees they increased them. (Lockwood Smith did not resign.) The student loans scheme was introduced in 1992, and student debt began accumulating fast. The most recent Labour government took some steps to slow the juggernaut (interest free loans and more) – but to my mind we should have done much much more. Student debt is $10bn and increasing at $1bn a year.

This post has been prompted by a few articles on student debt that I’ve encountered recently. Here’s one on the situation in England:

Once upon a time, graduates could leave university relatively debt-free and walk straight into well-paid jobs, their first taste of big borrowing being the mortgage on their starter home (roses round the door being optional). Today that seems like a plotline out of Narnia…

This one about America puts it pretty bluntly:

Student Loans are the New Indentured Servitude

The Wall Street Journal ran a post over the weekend about a new credit crunch among low income borrowers, noting it is now ‘payback time.’ What they didn’t go into is that their primary interviewee is drowning not on expensive cars loans but student loans. This former student’s debt is far from extraordinary. It is, in fact, tragically ordinary, as student loans have become the 21st century version of indentured servitude.

And here in NZ Bernard Hickey recently wrote a brutally honest and depressing assessment of the situation:

Dear Generations X and Y

Did you realize the baby boomers running the country have just decided to make you poorer for decades to come so they can retire early with all the assets and high incomes?

Did you realise your taxes are going to rise and you won’t be able to afford your own home? Did you know the baby-boomers are refusing to save their own money now for their retirements so they can live off your hard work? Did you know you will be slaving away paying high taxes in your 40s and 50s to pay for their pensions and health care? Did you know you’re wasting your time trying to build a family and life in New Zealand? Did you realise you have huge student loans while they received free tertiary education?

There were two big decisions in last month’s budget that guaranteed this intergenerational transfer of wealth, but they are not the only factor. Prime Minister John Key and Finance Minister chose to abandon contributions to the New Zealand Superannuation Fund (the Cullen Fund) for the foreseeable future. Yet they also guaranteed their fellow baby-boomers (they were both born in 1961) they would keep their pensions at 66 per cent of the average wage and could still retire at the age of 65. John Key has even promised to resign if he breaks this promise.

Your only choice is to migrate as soon as the global economy starts recovering and the jobs become available again. This will be the best revenge you can get. They will have to watch their grandchildren grow up by email and the occasional flying visit. I’m not kidding. Leave ASAP.

It will be tragic if more young people take that advice, but on purely economic terms it’s hard to argue against. We need to fix this. Labour made a start but didn’t get far enough. My fear is that National will take us backward. In 2010 the Finance Minister (and it will be no credit to this government if that is still Bill English) will be facing very hard choices in the budget. They will be looking for places to swing the axe, and will be tempted to take the easy path of further intergenerational theft. I can’t imagine a choice that would do more damage to NZ. Do anything but that. Put up the age of eligibility for super instead. John Key can simply break his promise to resign. It didn’t do Lockwood Smith any harm.

43 comments on “Intergenerational theft ”

  1. lprent 1

    The worst problem is that the current political climate is just piling up debt and obligations. The biggest thing that could be done at present is to reverse the taxcuts – all of them. Then there would be sufficient money to put away to pre-fund the liabilities that are piling up.

    The Cullen fund keeps getting its superannuation savings.The student loan system can be steadily made less costly. The burden on the health system can be funded.

    In addition this short-term (they think that way) government should put in a climate change system that is not a direct subsidy from the taxpayers to polluters. The forward liabilities from this crazy scheme that they are putting into place are incredibly high, and all forward loaded onto the young.

    You’d think that from the stupid decisions that the Key government is making that they think that in the future money will grow on trees.

    • Agreed and cuts to Kiwisaver will also increase the obligation of the state to fund Superannuation.

      The action of ACC is confused. Arguably it could be that it is designed to decrease the obligations of future generations to fund current liabilities but the steps that they have taken are all window dressing and will not make significant changes unless more than what they have currently announced is done.

      Unless this is an attempt to discredit ACC and ready it for privatisaion.

      I thought these guys were meant to be the economic geniuses and the left just a bunch of tax and spend liberals?

  2. Iprent sums it up well – it’s all about government priorities. In 1936, as we were climbing out of the Depression, we were the first country in the world, under Labour, to introduce free secondary & tertiary education for all citizens & we maintained that while financing the cost of fighting in WW2. If we could afford free tertiary education then, we can certainly afford it now – education is not a cost, it’s an investment in our future.
    As an interim step, Labour should adopt a policy of sweat equity to pay off all student loans – for every year that a graduate stays & works in NZ, 10% of their loan would be written off, so that in 10 years, they’ve paid no interest, they have a debt free tertiary education & NZ has had the benefit of their 10 years of productive, tax paying work – they haven’t been lost to overseas. A win – win.

    • jcuknz 2.1

      Better would be instead of wanting them to stay behind would be to let them have their OE and then when they return, with perhaps a five year maximum limit to wipe out the debt as Dean suggests. That means we have a more mature contribution to the ecconomy.

  3. jcuknz 3

    I remember when decades ago, I forget how many, when students started to have to pay these fees as government wanted ‘everybody’ to have a university education but it couldn’t be budgetted for. I thought and likely said then it was a mistake. So much better would have been to simply educate those who the country could afford and let the brightest go to uni rather than the current mob of the bums on seats policy. You should not need to have a varsity education to be a success in life, and many don’t though fewer these days than of old..

    • RedLogix 3.1

      You should not need to have a varsity education to be a success in life, and many don’t though fewer these days than of old..

      Don’t make the mistake of thinking that Student Loan = University Education. In fact almost all trade, technical and professional careers need some form of tertiary qualification these days. While there will always be a few remarkable exceptions, the driven ‘self made men’, the majority of people with nothing more than a secondary school qualification, will be stuck in low-paid jobs all their lives.

      Now I’m not dissing the drivers, the storemen, the cleaners, labourers and so on… folk who work hard at jobs most of us here would hate… but the point is that their choices in life are very limited by their education. Some 40% of our adult workforce is unable to progress to skilled work because they are functionally illiterate or innumerate.

      Last week we paid one of our tenants, who is a painter, to do an old roof for us. My partner who organised the gear and paint for him, related how suddenly she realised that this guy, whose mostly hard working and decent when sober… couldn’t read the label on the paint tin. He had no idea, without sniffing the stuff, of even whether it was water or oil based paint he was using.

      Once upon a time this would not have mattered too much. He could have likely made a modest but decent way in the world, married and had a family. In our times this door will be forever be shut… for him it’s booze, dope and transient relationships is all he has to look forward to.

      The old notion that only a small elite of the most capable should go on to post-secondary education is elitist and obsolete. In this complex, technical age some form of tertiary education is essential. In fact Helen Clark’s biggest and best idea was to raise the education leaving age to 18yrs, but that was one of the perhaps sadders losses of the 2008 election.

      • Lanthanide 3.1.1

        “Don’t make the mistake of thinking that Student Loan = University Education.”

        Furthermore, and this goes back to jcuknz’s original point, don’t assume that Student Loan = any kind of education at all. A lot of people go to uni for 1 or 2 years and drop out before even getting their degree, saddling them with debt for the future. A lot of people go to university because that seems like the ‘thing to do’, because they have no better idea and because there’s this culture for teenagers that going to polytech to learn a trade is for idiots who can’t cut it at uni, and that high school is purely preparation for university (the teachers at my school generally portrayed this idea, probably not deliberately).

        The current entrance rate for university is set far too low, and the ‘free entrance’ for 20 year olds should probably be moved up to 25. I remember a few months back I think it was Sharples was advocating that Maori should get to go to university without having to acquire entrance, and one of the vice-chancellors was interviewed on National Radio talking about the existing bridging and ‘step up’ programmes that are available for people to achieve entrance, and he said that 80-90% of the people who failed those courses and went on to enrol dropped out within the first 2 years anyway.

  4. schrodigerscat 4

    I wonder if all of the expensive new healthcare that can help people stay alive for longer should be recognised by increasing the age at which people default their way into government super.

    I think too that it should somehow have some threshold at which you are of independent means enough not to get it.

  5. RedLogix 5

    I’m not so sure about Hickey’s overblown analysis. He forgets that the baby-boomer generation are the parents and grandparents of the young students today:

    Did you realize the baby boomers running the country have just decided to make you poorer for decades to come so they can retire early with all the assets and high incomes?

    And some of that high income and a fair whack of those assets will eventually finish up in the hands of the younger generation anyhow… it’s partly just a timing thing. I’m not over-impressed much by the notion that somehow my generation had it all handed to us on a sliver platter. Sure we may not have had student loans, but the kind of incomes we started out on weren’t that flash either. And while at Uni I worked dammed hard cleaning office buildings all hours of the night to support myself… not all of us had rich parents.

    And intergenerational stuff is complex. For example, I’m at the very tail-end of the baby-boom, which meant that for much of my life there was a bulge of more senior people on the career ladder just ahead of me… it’s only as I’m getting to the end of my working life suddenly I’m finding all sorts of opportunities opening up.

    When purchased my first home in 1982, in those days banks acted pretty much as if they were doing you a big favour to lend you money, and then suddenly found myself paying 23% interest on the mortgage, mere months later.

    Now I’m not grizzling about this… just pointing out that Hickey’s analysis is simplistic at best.. that each generation faces it’s own peculiar set of circumstances, and that we are not all isolated into little generational ‘silos’ each thieving off the other… we are all far more interconnected than that.

    Where I do agree with Hickey (and others like Keen), is that unrestrained credit growth is the core of the problem… but unlike Hickey I’m calling the real source of the problem as a finance industry, which in order to grossly profit from our debts, has fed a global addiction to borrowed money. In 2005 some 40% of all corporate profit in the USA was made in the finance industry, just an inkling of the kind of enormous dead-weight these parasites have become… but we can be assured that Mr Hickey (www.self-interest.co.nz) is unlikely to ever point this out.

    • Draco T Bastard 5.1

      …I’m calling the real source of the problem as a finance industry, which in order to grossly profit from our debts, has fed a global addiction to borrowed money.

      I’ve been thinking about this and the more I think about it the more it seems to me that loaning/borrowing money should be illegal. In reality it is impossible to borrow from the future – the resources are either available or they aren’t and money isn’t a resource.

    • QoT 5.2

      And some of that high income and a fair whack of those assets will eventually finish up in the hands of the younger generation anyhow

      … Sure it will, RL. In my case, probably when I’m in my fifties, assuming my parents live to their 80s. Somehow I get the feeling that getting a home and starting a family should occur some time before then …

      • RedLogix 5.2.1

        No different to my situation, I’m well into my fifties and still maybe a decade off seeing a direct ihherentance. Buying a first home and raising family was never easy.

        Of course in other cultures the older generation more commonly funds or backs the younger ones than is customary in ours.

    • Quoth the Raven 5.3

      Hickey I’m calling the real source of the problem as a finance industry, which in order to grossly profit from our debts, has fed a global addiction to borrowed money.

      Look into this: Criticism of fractional-reserve banking.

  6. gitmo 6

    1. Capital Gains Tax
    2. Reduce ACC entitlements
    3. Increase the age at which super kicks in
    4. Get rid of working for families
    5. Increase payments into a compulsory super fund

    Re students debt

    Call me harsh but if you want a leg up from the state you should have to pass your exams/degree and the level of support should be targeted to skills needed in the workforce.

  7. Russell 7

    Most of those students racking up such large debts use tertiary education as an excuse to delay growing up, and never use their education to add anything of significance to the NZ economy.
    High fees should act as a deterent to such irresponsible behavour but instead media takes a one eyed view and promotes the view that universal free education for your whole life is a natural “entitlement”.
    Money spent on academic studies would be better spent on support and mentoring for people with energy and ideas.
    We dont need any more policy analysts with masters degrees.

    • Jeremy 7.1

      No, but our economy is screwed if we don’t start creating more jobs for scientists (who generally need at least bachelors degrees to do their jobs properly)
      And scientists are just one of many examples.

  8. Turn off the TV 8

    I’m 31, and I have only recently managed to pay off my student loan. Financially, my net worth is now roughly the same as when I left high school.

  9. Greg 9

    Funding of university education is a classic example of the great transfer of wealth from the poor to the rich. By funding university (to the extent we do currently) we are subsidising those best off in society, while making those comparatively worse off pay for it. University (for most) ensures a well paid job and a comfortable middle class life style. Now why should we make those who don’t go to university pay for it?

    To keep kiwi’s in New Zealand we need higher wages – and you can’t just increase wages by legislating despite what many may think. Productivity and growth are key. Any legislation that provided for a universal student allowance or the like would be incredibly regressive and just serve to widen the gap between rich and poor.

    • Jeremy 9.1

      You do have a point, but the only real way to boost productivity and growth is to send more people through higher education, getting them well paid jobs and middle class lifestyles in the process. The way to increase wages is to decrease the number of people willing to work for the minimum. The more people can get well paid middle class jobs, the closer we’re going to get to a shortage of janitors and shelf stackers, and the more people are going to end up paying for janitors and shelf stackers.

  10. Ron 10

    That’s an intriguing analysis, Russell. “Most” ? On what evidence do you base that statement?
    I am always interested by the sort of anti-academic stance you are taking.While I’m always in favour of backing people with energy and ideas i wonder which ones you would back – the Blue Chip guys – HEAPS o energy – plenty of ideas. Fay and Richwhite?
    The truth is that it is from academics that we get a good deal of our knowledge about the world. It is from PhD scientists who have “delayed growing up” that we get the knowledge we use for our “ideas”. But these guys ALSO keep an eye on the people who are always telling us we just have to “get on with it”. If your people with energy and ideas had been given free reign we wouldn’t have any resources to use in your brave new world. Your “delayed adults” were the ones who spotted such things as, hmm lets see, disease inducing effects of industrial wastes for instance. Not only that but your delayed adults also invented pretty much EVERYTHING on which we now base our industries and commerce.

  11. Bill 11

    Who said that the workers would be burdened with unserviceable levels of debt and that that would lead to the nationalisation of banks and then communism?

    According to the ODT a week or two back when they, possibly for the first time ever, quoted Marx in a positive fashion….

  12. Ianmac 12

    My two youngest are graduates and each has a student debt of $50,000 + This was because they had to move to Christchurch to study and had to draw $150pw as well as work partime 2 days a week. Others received a $170 student Allowance either for genuine reasons or if their clever parents could hide their apparent income below the threshold. There was talk from Labour to make a Student Allowance for all but that faded. Pity.

    • Ag 12.1

      They don’t give a damn because the student loan scheme was essentially a means to semi-privatize tertiary education. As far as I know, the loans are provided by banks, with the government as a front.

  13. vto 13

    Agree completely r0b, however I do not see this changing until voter demographics change. The boomer vote will vote entirely in self-interest. This is a human truth.

    So the alternatives are either leave NZ (and go to some other country in the same position?) or don’t pay tax. Or steal back off the boomers what they are stealing from us – the likely option

    • modern 13.1

      “Or steal back off the boomers what they are stealing from us the likely option”

      I like it… as soon as politically feasible (ie ‘demographically’ feasible?), start taxing accumulated wealth. The 50-year-old offspring of an 80-year-old dying baby boomer doesn’t need a huge inheritance, as someone argued above. And when that wealth is allowed to pass to the next generation it ossifies the existing social order and makes it much harder for the children and grandchildren of poor baby-boomer parents, and for recent migrants from developing countries, to improve their income level. Inheritances allow inequality to be preserved across generations, in other words. And, as the post argued, the asset wealth of the baby boomers was not gained by fair means; it was gained by the sacrifices of the parents of the baby-boomers (the ‘war generation’, do we call them?), and gained by running down the publicly owned assets of the country and off-loading costs to future generations – ‘intergenerational theft’, in other words.

      Pension cuts or means-testing in 10-30 years time will hurt the unlucky elderly who didn’t enjoy their generation’s wealth; reduced public spending on health, education, infrastructure and welfare will only hurt the younger generations; and monstrous inheritances will help a sizeable portion of the population become very wealthy but will leave the remainder out in the cold, in a high-tax low-service situation. So it seems to me a good strategy would be wealth taxation.

  14. infused 14

    Quite good reading.

    I think most younger people know this. Some stay in New Zealand purely because they don’t want to leave or family. Me, I’m here because of my business. I wouldn’t want to work for anyone in this country because the wages are piss poor. After running a business for 7 years now, I can see why the wages are poor here though. Tax, tax, tax, tax, on everything, in every way possible.

    If I wasn’t running my own business I think I’d be long gone. It is rather sad too. New Zealand is such a great place… Maybe for the rich that wish to retire.

    This is quite a complex discussion. Just one point, getting the free payment each week while studying is quite difficult to get.

    I thought studying was quite discounted anyway. IE: A course you take for 3k a year is somewhere around 10k for international students?

    Also, getting a student loan is too easy. People do courses they don’t really have any interest in.

  15. Ag 15

    I still have a huge student loan, having gone on to doctoral study overseas for six years after finishing uni in NZ.

    I long ago accepted that I probably won’t be able to afford a house, and that I’ll probably work until I’m dead without having paid it off.

    C’est la vie. What ya gonna do?

  16. BLiP 16

    Debt is a new form of slavery and distinguishable from the old simply by the fact that it is impersonal , there is no human relation between master and slave

    . . . or something like that.

  17. sean14 17

    “one Lockwood Smith, promised to abolish the fees, and famously signed a pledge to resign from parliament”

    The pledge says that if he were Minister of Education he would resign as Minister, and if not he would publicly condemn the breach of promise – not that he would resign from parliament.

    I have paid off two student loans and the sky hasn’t fallen in. I can’t see a good reason why I shouldn’t have paid a small fraction of the cost of an education that I will be the prime beneficiary of in the future.

    • Pascal's bookie 17.1

      Got a cite for that? I do remember him standing in my high school assembly hall promising me that there would be no fees, but can’t recall the detals of what he was going to resign from. But he didn’t resign from anything in any case so he’s still a dick.

    • r0b 17.2

      The pledge says that if he were Minister of Education he would resign as Minister, and if not he would publicly condemn the breach of promise not that he would resign from parliament.

      You are correct – I got that wrong. Fixed in the post, thanks for pointing it out.

  18. sean14 18

    Pascal, the link to the pledge is in the main post. Fair enough on your last sentence.

  19. sean14 19

    Let he who has not been a dick at some point in his life cast the first insult! 🙂

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