Revised Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)Chapter 3 Removal of HECS-HELP benefit
Summary
The amendments to HESA made by Schedule 3 will discontinue the HECS-HELP benefit. The HECS-HELP benefit operates as a deduction from a person's HELP debt, and is available to graduates in certain fields of study who are employed in certain occupations.
The HECS-HELP benefit was introduced as part of the 2008-09 Budget. It was designed to reduce HECS-HELP repayments by around $1,800 a year for early childhood education graduates and $1,700 a year for other occupations. Since 2008 the program has been expanded to other areas of identified need, including mathematics, science related occupations, teaching and nursing.
The HECS-HELP benefit has had lower than expected take up and has been ineffective in achieving its policy aims of influencing course of study choice selection and increasing demand for particular occupations.
Schedule 3 will commence from 1 July 2017.
Detailed explanation
Higher Education Support Act 2003
Items 1 to 15
Item 12 repeals Division 157 of HESA, which provides for the HECS-HELP benefit.
Items 1 to 11 and 13 to 15 remove redundant references to the HECS-HELP benefit from HESA.
Income Tax Assessment Act 1997
Items 16, 17 and 18
As a consequence of the cessation of the HECS-HELP benefit, items 16, 17 and 18 amend provisions of the Income Tax Assessment Act 1997 (ITAA 1997) that refer to the HECS-HELP benefit.
Section 11-15 of the ITAA 1997 identifies those types of ordinary or statutory income that are exempt income for the purposes of the Income Tax Assessment Act. Item 16 removes the HECS-HELP benefit from section 11-15.
Section 51-10 of the ITAA 1997 contains a table which identifies recipients of certain types of education and training amounts who are exempt from paying income tax with respect to those amounts. Item 17 removes item 2.9 from that table - recipients of HECS-HELP benefits.
Item 18 removes the definition of HECS-HELP benefit from subsection 995 1(1) of the ITAA 1997.
Item 19
Item 19 is a savings provision, that has the effect of ensuring that the cessation of HECS-HELP benefit only operates prospectively from the commencement of Schedule 4 (i.e. 1 July 2017). A person can still be eligible, and obtain the benefit of, HECS-HELP benefit in relation to income years before 2017-18, and all the laws and processes that operated in relation to HECS-HELP benefit continue to apply to HECS-HELP benefit for those earlier income years.
Thus, for example, subitem 19(3) makes it clear that
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- a person may, after commencement of Schedule 3, make an application in respect of an earlier income year in accordance with Subdivision 157-A of Division 157 of HESA as in force immediately before commencement; and
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- the Commissioner must make a determination on any application for an earlier year in accordance with Subdivision 157-C of Division 157 of HESA as in force immediately before commencement; and
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- section 140-5 of HESA, as in force immediately before commencement, continues to apply after this time for the purpose of working out a person's former accumulated HELP debt in respect of a determination of HECS-HELP benefit for an earlier income year; and
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- section 154-3 of HESA, as in force immediately before commencement, continues to apply after this time for the purpose of working out the amount a person in relation to whom a HECS-HELP benefit has been determined for an earlier income year has to pay under section 154-1 of HESA; and
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- a person may, after commencement, make an application for review of a decision referred to in item 4A of the table in section 206-1 of HESA (i.e. a determination of the Commissioner under section 157-20 of HESA) as that item was in force immediately before commencement; and
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- such a decision is able to be reviewed and given effect to in accordance with HESA as in force immediately before commencement; and
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- provisions of the taxation law (within the meaning of the ITAA 1997) have effect as necessary in order to give effect to item 19.
Subitem 19(4) provides that the HECS-HELP Benefit Guidelines in force immediately before commencement continue to apply for the purpose of HECS-HELP benefit under HESA for earlier income years. The continued HECS-HELP Benefit Guidelines may be amended or repealed as if they were Guidelines made under section 238-10 of HESA.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Minimum repayment income for HELP debts
Indexation of higher education support amounts
Removal of HECS HELP benefit
Overview of the measures
The Higher Education Support Act 2003 (HESA) is the main piece of legislation providing funding for higher education in Australia. This Bill makes amendments to HESA that will improve the sustainability of higher education funding, being:
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- the introduction of a lower income threshold at which recipients of loans under HESA must start repaying those loans (Schedule 1);
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- a change to the index for amounts that are indexed annually under HESA, from the Higher Education Grants Index (HEGI) to the Consumer Price Index (CPI) (Schedule 2); and
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- cessation of HECS-HELP benefit (Schedule 3).
Summary of analysis
The measures contained within this package are limited and justifiable. While there is minor potential for some changes to lead to increased costs for some students under the Higher Education Loan Program (HELP), these measures are necessary to support the provision of high quality higher education and to continue to provide equitable access for students.
Analysis of human rights implications
International Covenant on Economic, Social and Cultural Rights (ICESCR)
Article 11: right to an adequate standard of living
These measures engage with Article 11(1) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) which recognises "the right of everyone to an adequate standard of living...including adequate food, clothing and housing, and to the continuous improvement of living conditions".
There are elements within the legislation that may be perceived as relevant to article 11, particularly as they may result in increased costs for HELP recipients once they begin earning a sufficient wage. None of these changes will necessitate increased costs for students while they study (unless they are earning income above the threshold while studying), as they will continue to be able to defer all tuition fees though the HELP scheme.
Schedule 1 of the Bill establishes a new minimum repayment threshold for HELP loans. The proposed minimum repayment threshold is still substantially above the national minimum wage and will be adjusted annually to account for growth in average earnings. Additionally, above this new minimum repayment threshold students will pay only two per cent of their annual taxable income. As such the measure is reasonable and proportionate to meet the policy goal of ensuring the long term viability of the HELP scheme.
Schedule 3 of the Bill removes the HECS-HELP benefit. The HECS-HELP benefit was designed to provide an extra financial incentive for graduates of particular courses to take up related occupations or work in specified locations by reducing their compulsory HELP repayments. Its removal may result in increased costs for these graduates. However, in order to receive the HECS-HELP benefit, graduates must be working and earning above the minimum repayment threshold which is substantially above the minimum liveable wage.
Furthermore, continued access to education, as ensured by a sustainable and efficient HELP scheme, will provide a basis for increased earnings and therefore assure a higher standard of living for many graduates.
Article 12: Right to education
These measures engage with Article 13(2)(c) of the ICESCR which states that "higher education shall be made equally accessible to all, on the basis of capacity, by every appropriate means, and in particular by the progressive introduction of free education".
The sustainability of HELP is crucial to ensure continued access to higher education. HELP ensures that students do not face upfront costs for their higher education and are able to further their study on the basis of capacity to learn rather than capacity to pay.
Schedule 1 will change the minimum repayment threshold for HELP debts to 90 per cent of the current minimum income threshold. In the 2016-17 income year, taxpayers are not required to start paying back their HELP loans until their annual incomes reach $54,869. In the 2018-19 income year, the new threshold at which people will start repaying debts will be $51,956.
From 1 July 2018, a lower repayment rate of two per cent will apply for those with incomes above the new threshold up to the current minimum threshold. The lower two per cent repayment rate for those above the new threshold will ensure that those HELP debtors who earn above the new minimum threshold but less than the existing minimum threshold will not experience a large reduction in their disposable income, while supporting the sustainability of the HELP scheme.
Schedule 3 discontinues the HECS-HELP benefit. The abolition of the benefit will cease funding an ineffective program without adversely affecting higher education access. The benefit was designed to provide an extra incentive for graduates of particular courses, such as education, nursing, mathematics or science, to take up related occupations or work in specified locations by reducing their compulsory HELP repayments. However, uptake of this program has been lower than expected. Removal of this measure will have no impact on access to higher education for students as it is only available once their higher education course has been successfully completed. Additionally, this program provides a financial benefit to work in specific areas or occupations rather than a reduction in costs for these students.
Currently, grants and student contribution amounts under HESA are indexed each year under the Higher Education Grants Index (HEGI). Schedule 2 replaces the current HEGI indexation with indexation by the CPI. This is part of a Government-wide initiative to streamline and simplify indexation rates for Government programs. Moving to CPI reduces the rate of spending growth in order to ensure the long-term sustainability of higher education programs such as the Commonwealth Grant Scheme, research grants and Australian Postgraduate Awards.
Conclusion
These Schedules are compatible with human rights.