Australian university graduates who move overseas to work for long periods have deprived the country of about $450 million in unpaid HECS debts since the payment scheme was introduced in 1989, according to a new study.
An investigation by Australian National University academics Bruce Chapman – who designed the HECS scheme – and Tim Higgins has found that at the current estimated rate, the amount of cumulative forgone revenue will soon top $1 billion.
The authors said that because there was so little data about the number of graduates who had moved overseas, or how long they had stayed there to work, they had decided to be “conservative in the application of the modelling so that the figures we are prepared to report can be considered to be understatements of the true forgone HECS collection”.
There was a range of ways the Australian Government could recover the money, the authors said in their study, “Stop the Boats! The Costs of Unpaid HECS Debts from Graduates Going Overseas”.
It could agree with other countries to use their internal revenue services to collect the debts with the use of the same income-contingent parameters in force in Australia. “But this seems to be fanciful given that only England, New Zealand, Hungary and South Africa currently have income tax-based student loan collection systems, although many other countries seem likely to move in this direction over time,” they said.
Alternatively, Australia could incorporate HECS as well as income tax into its mutual income tax agreements with other countries. Here again, the transactions costs would be high given the amounts of money involved.
The most feasible proposal, the authors said, would be to require students who signed a HECS debt obligation contract to repay the minimum annual debt in the event that they were overseas beyond a short period, for example six months. This would amount to about $1900 per year – “a small sum in the context of the likely financial circumstances of HECS debtors employed outside Australia”.
Dr Higgins, a Senior Lecturer in Actuarial Studies at the College of Business Studies at ANU, said that “while [the amount forgone] might be small relative to all outstanding HECS debt, it’s still a large amount of money. If recovery was tricky and costly, then it might not be worth pursuing, but we believe that there could be a simple and cheap fix.
At the time HECS was introduced, the important consideration was “to bed down the principle of HECS”, Dr Higgins said. “It was a very innovative proposal. The focus was on justifying and getting acceptance for the policy, and working out how it could be collected. I suspect that, at the time, the issue about debtors leaving the country was overlooked or considered a minor issue in the scheme of things.
“Administratively we believe this would be straightforward. It would simply involve asking those who go overseas to commit to sending the ATO a set sum of money once a year. People don’t like breaking the law, so we’d expect the majority would comply.”