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Whats fair? University
graduates pay their way with a tax double-whammy
Graduates already pay far more in tax than
non-graduates, says a Canberra economist.
ECONOMICS / GEOFF MASLEN | June 23, 2004
Australias university graduates pay far more in tax during
their working lives than the cost of their education and therefore
should not have been charged for their tertiary studies, a Canberra-based
economist said last week.
In a biting critique of the Labor governments
decision in 1988 to introduce HECS, and the Coalitions approval
for universities to increase the charge, Tim Curtin said the average
graduate pays at least $350,000 more in lifetime taxes than non-degree
This is far above the cost of a degree at
around $20,000 to $40,000, he said. Graduates number
only about 16 per cent of all income tax payers yet they contribute
over 30 per cent of total income tax.
Curtins controversial paper, prepared for
a seminar at the ANU last Thursday is backed with graphs and statistics
supporting his argument. In it, he calls for university education
to be free, noting that as a result of graduates lifetime
tax payments, the Commonwealth actually earns a 20 per cent return
on its investments in higher education.
A former economics lecturer in England with an
MA from the London School of Economics, Curtin has spent most of
his life as an economics adviser to various African governments
and, more recently, the Papua New Guinea Government. He is currently
a visiting research fellow at the ANU.
In his paper, Curtin attacks HECS designer, Professor
Bruce Chapman (who attended the seminar), and the committee chaired
by former NSW premier Neville Wran that persuaded Labor Education
Minister John Dawkins to adopt the system.
It is precisely this refusal to acknowledge
that graduates pay back through their higher taxes much more than
the cost to taxpayers of their degrees that is the basis of the
generally misleading presentations by Wran in 1988 and Chapman ever
since, he said.
Ideally, HECS should be scrapped and university
education again made free, Curtin said. Failing that, universities
should be allowed to charge full cost fees but only if both
the fee and any costs such as the interest payable through HECS
are tax deductible.
HECS was based on the Wran committees claim
that although graduates average starting salaries placed them
in the top 22 per cent of all income earners, they as direct
and large beneficiaries of higher education contribute
very little directly to the costs of provision.
Therefore, the committee argued, the advantaged
who use and benefit directly from higher education ought to contribute
more directly to [its] cost. But, as Curtin points out, this
ignores the fact that graduates end up paying double their share
He describes Chapmans claim that a
no-charge public university system (that is, financed by all
taxpayers) is regressive as nonsense and seriously misleading. Similarly,
Curtin said the arguments by Chapman and others that deferring the
HECS charges does not affect demand from lower socio-economic groups
is deeply suspect.
It is true that the share of the lower SE
groups in university enrolments has remained steady at about 15-17
per cent, he said. But it is also true that their share
of those completing year 12 has risen. Thus [all] the studies...
fail because they focus only on those who have attended university
and not on those who have not, despite having valid entrance qualifications.
Curtin said it is simply not credible to claim,
like Chapman, that while fees payable upfront would
have a deterrent effect, fees that are deferred by repaying HECS
after graduation would not have that effect.
Accepting that any government is now highly unlikely
to abolish fees, he said students and their parents (if they meet
the cost) should be able to claim a tax deduction on the costs of
going to university.
It is certainly a society with uncertain
values that by its tax policy allows those who borrow to buy investment
homes to claim tax deductions (of up to 48.5 per cent on both the
cost via depreciation and the financing charges) whilst those investing
in their childrens education obtain no such relief,
One method would be to allow tuition fees paid
to be treated as tax credits. This would mean a graduates
annual tax liability would be reduced by the amount of documented
university fees he or she had paid.
With the number of potential students whose parents
already pay enough tax to be able to claim credits for the full
cost fee, Curtin predicts a large increase in up-front fee payments.
He estimates this could rise from the 8000 students who paid full-cost
fees in 2002 and the 30,000 commencing students who pay HECS fees
upfront, to perhaps more than 200,000.
The one in five students whose parents would not
earn enough to be able to claim fee credits should receive Commonwealth
grants or scholarships as they did before Wran. Grants
would also be available to cover the extra costs of degrees such
The ethical justification for the combination
of tax credits for those able to claim them and grants for the rest
is that it re-invents free higher education for all students whilst
at the same time it privatises the universities, by making them
wholly dependent on cash income from fees for their teaching,
The governments role would then be limited
to providing grants for the minority of students whose fees did
not attract tax credits and paying for university research.
Thus this strategy recognises and
nearly completes the gradual withdrawal of government from higher
education, fulfiling an unspoken but probably unintended implication
of the Wran report and of subsequent revisions to HECS in 1997 and
2003, all of which reduced the governments commitment.
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