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campusreview.com.au
Bruce Chapman, professor of
economics at ANU, Canberra.
Photo: News Corp Australia
A HECS of an idea
ANU professor recommends
HECS-style loans to soften
COVID-19 economic crash.
By Wade Zaglas
The architect of Australia’s original
Higher Education Contribution
Scheme (HECS) is calling on
the government to roll out income and
revenue-based loans to soften a likely
world recession.
Professor Bruce Chapman, a leading
economist from the Australian National
University, says income-contingent loans
(ICL) and revenue-contingent loans (RCL)
are “the best way” to limit the economic
impact of COVID-19 on households and
businesses.
HECS, which is now used in 10 countries,
enables higher education providers to
lend to students without them paying for
up-front tuition. Instead, students repay
the loans once they have reached a salary
threshold, which is currently $45,881
per annum.
“These are days of anxiety and fear –
including for businesses and people bracing
for the economic fallout of COVID-19,”
Chapman says.
“It is very welcome news that the
Australian government might be
considering HECS-style loans as part
of stimulus to help counteract the
recession forces accompanying the global
coronavirus crisis.
“Income-contingent loans can be applied
in a variety of ways, including for drought
relief, solar energy, business research and
development, or extended paid parental
leave.”
However, the professor also recommends
smaller loans for individuals in financial
trouble, including anyone who has their
hours cut or has been made redundant.
“This could be a loan of $5000, enough
to tide people over until their fraught
employment situation becomes clearer.
Repayments would be based on personal
income and designed to minimise nonrepayments
of the debt,” he says.
Chapman adds that loans for businesses
affected by COVID-19 are ideally set up.
“The elegance of RCL as a response to
short-term business problems is that we
have all the pieces of the puzzle already
in place. So we can act quickly and
effectively,” he says.
“This includes access to a firm’s Business
Activity Statement, which is used by
employers to transfer GST revenue to the
government. The very same system, we are
told by accountants, is ideally suited for the
application of an RCL.”
However, Chapman tells Campus Review
that there might have to be some caveats
with RCL loans, as many businesses shut
down in their first few years, and staff
turnaround rates can be high. On that basis,
he recommends that such loans be offered
to businesses that have been operating for
three years or more.
Chapman asserts that income and
revenue-based loans would be “the fairest
and most sensible form of economic
stimulus at a government’s disposal”.
“Governments can provide very large
sums of money in the form of grants or tax
relief, but with enormous future costs to the
state of the budget,” he says.
“Or governments can extend normal
concessional loans now in use, which have
all the repayment risks and uncertainties
associated with conventional borrowing.
“Instead, the insurance benefits of
contingent debt have become very clear
from our 30-year experience with HECS,
and the simplicity and equity of comparable
loans for business in the form of RCL are
also compelling.”
Chapman also says that such a measure,
while costly in the short term, “could
save the budget a lot more money and
help more people” as the government
would ultimately be getting a lot of the
money back.
In an interview with ABC National Radio,
the economics professor likened the
scheme to progressive income tax whereby
individuals pay a suitable amount based on
their income.
“It’s a temporary problem with finance.
They [businesses and individuals] will be
there to repay their loans when things start
to recover”.
Some of Chapman’s detractors, however,
have called the ICL and RCL strategies
simple copies of HECS, but the professor
takes no issue with this and believes it is
perfectly placed to at least ameliorate the
current and looming economic carnage.
He also adds that the HECS system affords
a lot of flexibility in terms of repayments, for
both taxpayers and businesses.
Currently, the Australian government has
committed to $189 billion in combined
stimulus packages, including loans for
small businesses, up-front payments for
a range of individuals, and early access to
superannuation. ■
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