EDITORIAL: Expensive carrot for taxpayers

Paul Taggart
It could be argued that Westpac's criticism of the Labour Party proposal to offer interest-free student loans was made out of self-interest.
After all, the bank offers financial help to graduates, and that business may be bruised as a consequence of Labour's pre-election policy bombshell.
But after the savage attack on Westpac by Education Minister Trevor Mallard (who described the bank's analysis as "garbage") and Prime Minister Helen Clark (who called its costings "lurid") why would a second financial institution - and a competitor, at that - stick its head out of the trenches and risk a bullet between the eyes from the Government assassins?
Unless of course, they genuinely believe that the interest-free loan policy is a blunder.
National Bank's chief economist John McDermott came out in support of Westpac's analysis yesterday and voiced concern that Labour's venom could stifle comment and debate. Mr McDermott's view is that it is hard to believe students would not rort the proposed system by borrowing the "free" money and reinvesting it to earn interest.
Labour puts a $300 million price tag on the loan-scheme amendment, while Westpac said it would likely cost $700 million.
Labour has ruled out having Treasury cost the plan as it is a party, rather than a government proposal.
There is no doubt the policy is a vote-catcher. It will save students a huge amount of cash, but could similar assistance not have been given without giving students the huge incentive to abuse the system?
For example, if the $300 million or $700 million had been used to cut the cost of university fees - with a little of it earmarked for lecturers who are on strike today in Wellington leaving students twiddling their thumbs - then students could have continued to pay interest, but on much smaller debt.
Making the loans interest-free will give students a massive incentive to borrow every penny they can, even if they don't need it, such as the $1000 handouts for "course-related costs", then put the money in the bank at 6 percent interest and take as long as they can get away with to pay it back.
And even if a student goes on to earn a good income, their student loan will be the last thing they will consider paying because their mortgage, higher purchase payments, credit card, bank overdraft, car loan and any other credit they have will cost them money, while the student loan won't.
It may be a wonderful carrot to win the votes of students and their parents, but it will be an albatross around the neck of taxpayers for many years to come.