Cullen loses $100m off loan costs

Treasury has re-estimated the cost of axing interest on student loans at $200 million - $100 million less than Labour said before the election it would cost.

Finance Minister Michael Cullen revealed the new estimate in Parliament on Wednesday during the first reading of a bill which implements the plan.

Dr Cullen said he had to admit Labour had been "significantly in error" and the actual costing was $202 million in 2008-09.

Treasury papers released at the Ombudsman's order just before the election after Official Information Act requests showed the original estimate was $390 million, but Dr Cullen's office had asked for a second set of costings based on a lower assumed loan take-up rate.

The second estimate - of $302 million in 2008-09 - was used by Labour when it released the policy.

But Dr Cullen told the House the latest Treasury figure was an actual costing and was not done on the "back of an envelope" like the department's first effort.

He revealed he had been sitting on the figures for some time and was waiting until the first reading of the bill.

National finance spokesman John Key yesterday attacked the latest figure, saying it could not be right.

He pointed out that the $200 million figure was also inconsistent with Dr Cullen's recent statement that the cost would be about 10 per cent of National's $3.9 billion tax package - indicating a $390 million cost.

"The latest figure is farcical. It defies belief. Cancellation of the existing loans equates to a greater cost than the number the Government is now claiming."

The Herald has asked for the latest Treasury advice under the Official Information Act.