Young New Zealanders give their thoughts on the Government's Budget 2025 and how it will impact them. Video \ Jason Dorday
Hundreds of thousands of New Zealanders with a student loan will start paying more after the Government confirmed an indefinite freeze on the repayment threshold.
The Government had signalled as much in March but Budget 2025 confirmed an indefinite suspension at $24,128 rather than adjusting for inflation as has typically happened in the past.
This will save the Government $65 million over the next four years – a move one economist called reasonable as the Government tries to keep its finances under control.
But another slammed it as an egregious and retrograde policy that would end up effectively taxing people already doing it tough.
For the 2025–26 tax year, borrowers need to pay 12 cents of every dollar they earn over $24,128 to Inland Revenue (IRD) in loan repayments.
If the student loan repayment threshold doesn’t rise with inflation, people make more repayments as their income increases, despite not necessarily being better off.
Economist and associate professor at the University of Auckland Susan St John said the threshold was far too low and would affect people on very low incomes, many who already struggle to support themselves.
“It is so egregious because it is so low it even captures some people on benefits. It’s a 12% tax, there is no other way to describe it.
Freezing or raising the threshold has been a point of contention between Labour and National over the years with National tending to freeze it and Labour often opting to increase it.
Previous reporting from the NZ Herald delved into this see-sawing. The Key Government froze the threshold in the 2010-11 tax year, lifting it only in the 2017-18 tax year.
The Ardern Government lifted the threshold each year, adjusting it upwards to account for most inflation.
Principal Infometrics economist Brad Olsen said it was better to inflation-adjust things but, since many were already adjusted, not doing this one was “not as big of an issue”.
Brad Olsen, chief executive and principal economist at Infometrics. Photo / Mark Mitchell
“It’s clearly a change. For some of those on the margin that were earning at effectively lower levels, they’ll start to be caught by needing to repay but that is effectively the obligation that borrowers have with the Government.
“The fact that over time it effectively will be a lot more people starting to pay or needing to pay, I think that is reasonable. You’re getting an interest-free student loan from the government, once you start to earn that level of money, it’s reasonable that you start to repay.”
According to previous Herald reporting, if the threshold had not been frozen in 2010-11 and had risen with inflation each year since, it would be about $27,499, saving borrowers about $404.50 a year.
The change is expected to impact about 370,000 New Zealand-based borrowers, costing an additional $1.20 a week on average in repayments than had the threshold been adjusted for inflation.
Do you have questions about the Budget? Ask our experts - business editor at large Liam Dann, senior political correspondent Audrey Young and Wellington business editor Jenee Tibshraeny - in a Herald Premium online Q&A here at nzherald.co.nz at 9.30am, Friday, May 23.
