Dr. Michael Cullen Speech to NZUSA Conference

It is a pleasure for me to be here today to address your conference at the
start of what will be an important year for tertiary education in New
Zealand.

When I became Minister for Tertiary Education late last year there was an
immediate burst of enthusiasm in some parts of the sector. The perception
was that having a minister who is also the Finance Minister would surely
provide the tertiary education sector with inside running on any matters to
do with the Budget and additional funding. If there was any largess to be
spread around, it was suggested, I would quietly ensure it would go first to
tertiary education.

It is important that I burst this bubble of expectations fairly early. One
might in fact argue that having the Finance Minister as your minister is
something of a poisoned chalice. Like the local constable who cannot afford
to be seen as lenient with his own family members, Finance Ministers feel
the need to apply additional scrutiny to any new budget bids in their own
portfolios.

In my role as Finance Minister I need to ensure that the taxpaying public
get good value for their money, and that all new expenditure passes rigorous
tests in terms of delivering social and economic outcomes that benefit the
whole community.

Having said that, I am very confident that 2006 will be a good year for
tertiary students and tertiary providers. The Labour led government has
shown in the last six years that when additional resources are available we
are prepared to make major investments in tertiary education in terms of
quality and access.

Equally important, we have begun to turn the tertiary sector away from the
rather simplistic market-based model of the 1990s, which, while it resulted
in burgeoning numbers of people engaged in tertiary study, led to a loss of
focus in parts of the sector. As I will argue later on, governments in the
1990s achieved increased quantity and greater responsiveness to short term
opportunities, but at the expense of quality and relevance to the long term
needs of the community and the economy.

There is still work to be done. We are committed to objectives such as
reducing student debt, maintaining and building on our generally high
quality standards, ensuring that institutions are well managed, and
developing a funding system that supports quality and relevance.

So far this year a number of new initiatives have already come into force:

„h From 1 January 2006 the amount of money students can earn before their
allowance is affected has been significantly increased. The personal income
threshold for students has increased from $135.13 before tax per week to
$180 before tax per week. And the combined income thresholds for couples has
also been increased. Whereas before, if a couple's before tax combined
income was over $270.26 before tax per week, they were eligible for the
earning spouse rate of Student Allowance, now this threshold has been
increased to $360 before tax per week.

„h In addition, students will no longer automatically lose their allowance
as soon as any other income they have is above the personal income limit.
Instead, any other income a student receives above the threshold of $180
before tax per week will reduce their before tax weekly Student Allowance
dollar for dollar. This means, for example, that a single student can now
earn $180 per week before tax and couples can now earn between them $750 per
week before tax before their entitlement to an allowance is abated.

„h Additional support has also been provided to students from families with
more than one child in tertiary education and to students with separated
parents. Previously, $2,200 of parents' annual taxable income was
disregarded for Student Allowance eligibility purposes for each additional
dependent 16 to 24 year old student in full-time study (additional to the
student whose allowance eligibility is being calculated). This disregard has
now been increased to $7,000.

„h An additional disregard of $3,400 per year will be introduced for
students whose parents are living separately, to recognise the additional
costs of running two households.

The next important date will be 1 April this year, when important changes to
the Student Loan Scheme come into effect. These will mean that no borrower
living in New Zealand will pay interest on their loan. In addition there
will be an amnesty period on penalties for borrowers living overseas who are
in arrears with their payments.

I imagine that the details of this new policy are well known to you.
Certainly this is an area in which the NZUSA has been energetic in
presenting a student¡|s perspective. You deserve credit for not only keeping
the issue in the public eye, but also arguing on the basis of the broader
public good, both social and economic.

This is not a matter of providing anyone with a free lunch, let alone
providing young National and Act supporters with subsidised capital for
investment in the financial markets. It is a policy aimed at improving the
skills base of New Zealand through improving access to tertiary education
that is high quality and relevant. It has been designed both to cut the cost
to students of tertiary study and to encourage skilled New Zealanders to
invest their skills in the New Zealand economy.

So, from 1 April this year, all borrowers who are studying part-time or
full-time will continue to have the interest on their student loans written
off; and all borrowers who are not studying, irrespective of whether they
have graduated with a qualification, will pay no interest on their student
loan. The only proviso on that will be that they are living in New Zealand.

Interest will be charged on student loans when borrowers are away from New
Zealand for more than 183 consecutive days. If the borrower has returned to
New Zealand for a short visit of less than 31 days the time in New Zealand
will be counted as if the borrower had remained overseas.

When a borrower has been overseas for more than 183 consecutive days,
interest charges will be backdated to the day after the borrower left New
Zealand. Interest will cease to be charged once the borrower has been in New
Zealand for more than 183 consecutive days. If the borrower goes overseas
for 31 days or less during a period of 183 consecutive days, the time
overseas will be counted as if the borrower had remained in New Zealand.

Inland Revenue will also have discretion to grant an exemption to the rules
covering time spent overseas under a variety of circumstances. These include
where borrowers are studying full-time at postgraduate level overseas; where
they are employees on oversees posting; or where they are in employment that
requires a significant amount of travel. The rules have also been designed
to accommodate circumstances such as an unplanned period of absence - for
example, visiting a sick parent ¡V or an unavoidable delay in returning to
New Zealand due to unexpected circumstances such as illness.

The interest free student loan policy will apply to both existing and new
loans.

As a further inducement to encourage skilled graduates back to New Zealand,
non-resident borrowers who are in default for non-repayment of their loans
will have their penalties cancelled under a special amnesty if between 1
April this year and 31 March 2007 they agree to keep their current liability
up to date for two years.

These new policies come with a hefty price-tag. The operational cost is
estimated to be $218 million in the first full year of operation, rising to
$269 million by the end of the decade. It is also estimated that the
interest free regime will cause a one-off reduction in the value of the
student loans portfolio held by the Crown of around $1.5 billion. There will
be a further impact of around $500 million due to a shift in accounting
treatment from book to fair value.

Alongside changes to the loan regime itself, we are also pursuing the goal
of reducing student debt by improving and enhancing StudyLink's financial
information service. Tertiary study is a major commitment of time and
resources, and it requires grappling with uncertainties about future earning
streams and trends in the labour market.

Ideally what we want to achieve is a situation where graduates are
comfortable with their level of debt given the value of the qualification
they wish to attain and their future career prospects. What we want to avoid
is graduates whose debt is entirely out of proportion with the benefits they
receive from their tertiary study.

Achieving that is a matter both of directly reducing the burden of debt
through measures such as the no interest policy, and also helping students
assess the options in advance (and to reassess them midstream, if necessary)
and make the best decisions about their student finances. The enhancements
to StudyLink should see this service provided to around 20,000 students in
2006/2007, which is a 25 percent increase over the previous year.

There are of course other issues still on the agenda with respect to student
finances.

The fee maximization regime was brought in to protect students from the
imposition of sudden large increases in fees. It was prompted by a number of
instances where, part way through a course of study, students faced
significant fee hikes without adequate explanation.

By and large it has been successful in that objective. As with any attempt
to impose a lid on price increases there have been issues around what
constitutes a price increase and which costs are covered by the regime. Some
students have complained of additional costs being imposed by way of non-fee
expenses. And some institutions have felt aggrieved that their attempts to
hold down fees in the past have not been adequately recognised, in essence
that they are being punished for their past restraint.

I think these are teething problems rather than indicators of a flaw in the
policy or its implementation. However, it is something I am keen to keep
under review.

So far I have focused on the issues that relate to how the total cost of
tertiary study is shared. I think it is important to broaden the context,
and to keep in mind the outcomes that individual students and the community
as a whole are seeking out of the tertiary education system.

Tertiary education is not simply a consumer good, although some people
undoubtedly treat it as such, and some institutions have come dangerously
close to marketing their product as a lifestyle choice. Education is an
investment; an investment of time and financial resources and foregone
earnings on the part of students and their families; and a major investment
of public funds by government.

This is a crucial expenditure in terms of our goals of building a highly
skilled workforce, fostering innovation and transforming our economy to one
based more firmly on knowledge industries and high-value niche products.

This is where quality and relevance become pivotal concepts. Indeed I would
argue that these are key issues from the perspective of students. While
questions of financing inevitably loom large in student politics, I would
suggest that they pale into insignificance in comparison with issues such
as:

„h The standard of pedagogy;

„h International benchmarking of courses and qualifications to ensure their
ongoing value in the global marketplace;

„h The capacity of the tertiary system to attract and retain staff of
international calibre;

„h How well graduates are equipped to address the key social challenges New
Zealand is facing, to provide the skilled professional workforce that
employers need, to undertake ground-breaking research, and to create the new
businesses that New Zealand is well-suited to foster.

My government has taken some actions already around quality and relevance.
We have placed limitations on certificate and diploma courses to avoid them
being used as low-cost cash-cows. And we have reviewed the funding of
courses with a high recreational element to ensure that enrolments bear a
close relationship to the actual demand for these skills.

Later this year we will be issuing a new Tertiary Education Strategy. The
first TES covered the period from 2002 to 2007, and inevitably focused to a
large degree upon bedding in the 2002 reforms to the sector. That work has
been done, and the next TES is, as it were, the first opportunity to plan
with a clear road ahead.

A key objective of that new strategy will be to shift from a focus on
enrolment to a greater emphasis on teaching quality and on managing learning
programmes toward better outcomes. We need to examine course completion
rates, and to minimise the number of students who embark upon programmes of
study but get lost in the system through insufficient foresight and
planning, or through inflexible bureaucratic process which do not allow them
to customise their study according to their needs and their family
situations.

The major outstanding issue is the funding system, and you can expect
further action this year alongside of the development of the new TES. The
current EFTS system is too much based on funding quantity (¡¥bums on
seats¡|, to use the familiar phrase) and it provides no particular
incentives to pursue relevance and to enhance quality.

It is based on the rather simplistic market model that captivated
governments during the early 1990s. Some proponents still regard it is
elegant in terms of economic theory. The fact is that it gives very blunt
signals about quality and relevance. Instead, it encourages increasing
quantity (and a concentration on high margin course offerings) and instead
of relevance and mixture of course offerings with are safe bets and some
which border on being faddish.

I am not suggesting that institutions are like rather complicated laboratory
rats who need financial stimuli in order to prompt them towards relevance
and quality. Academic staff are, with very few exceptions, passionate about
doing a good job of teaching and research, and eager to explore the links
between their subject and the modern world in which they and their students
live.

The problem arises when a poorly designed funding system starts to undermine
these intentions. We cannot ask TEIs to simply ignore the realities of the
funding system; and yet there are no winners when the pursuit of student
volumes puts the standard of teaching in jeopardy and hampers the ability of
staff to remain current with the latest research in their subject areas.

My officials are currently identifying alternative options, and so I am not
yet in a position to indicate what specific changes may occur. However, the
objective is clear. It is a funding system that reflects what the community
values in terms of the broad set of skills that are needed for transforming
our economy, strengthening our society and celebrating our unique culture.

Our conviction as a government is that we can and must create a tertiary
sector that, without exception, provides education that is high quality in
terms of international benchmarks and the expectations of learners and
employers, and highly relevant to the skills needed to face the economic and
social challenges that New Zealand faces.

It will be a system that offers students a sensible regime for financing
their study and living expenses, one that recognises that education is a
public good as well as a private one and that facilitates rather than
constrains the ability of students to make good choices and follow their
aspirations to the extent of their abilities.

I believe that in the next five years this goal is well within our grasp.

Thank you.