National 101: How to hate debt & raise it at the same time

Debt's bad, right? So why is National asking our best and brightest to take on more if they want to get smarter?

Steven Joyce is one of the smoothest operators in politics - whether you agree with him or not, he's gets is evidential ducks in a row and you can only guess at the number of spreadsheets he's crafted to back his decisions. Which is why the twisted nature of his student allowance reforms is kind of surprising.

How twisted, you ask?

To explain, let me see if we can agree on a few things to start with. First, private debt is one of the biggest problems this country is facing. Arguably it's the biggest economic problem and certainly the biggest risk to our credit rating. Bill English repeatedly takes pride in how his policies have - how does he put it? - nudges people in the direction they were already going, when it comes to saving more.

National has argued long and loud that debt is their biggest fear and returning us to surplus their greatest goal.

Second, we want a knowledge economy. Or a smarter economy. Call it what you will. Essentially, we want to rely less on exporting logs and milk powder and be more innovative. As Sir Paul Callaghan used to say, we want to become a country where smart people want to live.

Can we agree on those?

If so, why would you cap student allowances at four years of study? Why would you do anything that could discourage people from doing post-grad study. Surely one of the most vital questions for Steven Joyce as both minister for the tertiary sector and innovation is: How do I get more people doing more post-grad work.

The numbers have been increasing in the past decade, at least. (I haven't seen any numbers further back than ten years, so it could be a longer trend). But it's not enough. So much of America's economic success has come from the quality of their universities - and the number of students staying in them and studying longer.

Joyce seems to get the importance of the former point, but not the latter. Yet it's by keeping more students in the lab and in the classroom that we'll get more patents, more innovation, more marketable ideas.

Bottom-line: Will capping allowances help grow the number of post-grads in New Zealand? I'd assume the opposite. So it's hardly a policy that encourages the knowledge economy, we (hopefully) agreed earlier was what we wanted.

Hang on, says the minister, there's nothing to stop students studying more. They'll just have to take out a bigger loan.

Which takes us to the second point, about debt. It's bad, right? It's so bad that everything this government does comes back to reducing it. Well, everything except student loans.

In this case, the minister is saying to students that if they want to study more, get smarter and be more innovative, you should go deeper into debt. On your head be it. We won't encourage you or help you. You just borrow away.

So the best way for us to grow our knowledge economy is for grad students to take on more personal debt? Before they even start earning. Before they want to buy houses or start families. How's that good policy, again?

As we know, it's personal debt that is much more of a threat to New Zealand than government debt. So why is National shrugging off its growth and innovation priorities and pushing the debt off its books and onto graduates'?

It makes no sense. Indeed, it leaves National arguing vehemently against debt on one hand, yet on the other, encouraging our best and brightest to take on more debt.

You're left to conclude that it comes down to politics. Perhaps its growth and innovation priorities are shallow and, more than else, it just hates the fact it's stuck with a policy it hates.

John Key once called interest-free student loans "reckless". But that was before it - in large measure - cost them the 2005 election. National had to realise that a policy it hates is actually incredibly popular.

As a result, Key swallowed that dead rat and gave Joyce the task of nibbling away at the scheme incrementally (in a rat-like manner), destroying it from within. Maybe that's just the nature of politics. And maybe National can get away with hating debt and increasing it at the same time.

But the sad thing is that National has puts its political displeasure towards interest-free loans ahead of its common-sense and any it has to desire to see a smarter, more prosperous New Zealand.