PM accuses Treasury of getting it wrong

Helen Clark, speaking with 94-year-old Eva Elliott in Mount Albert yesterday, is defending Labour's sutdent loan policy. Phil Walter / Getty Images

Prime Minister Helen Clark is accusing Treasury of incompetence over its first costings on the student loan policy.

Finance Minister Michael Cullen was yesterday forced by the Ombudsman to release the figures provided by Treasury for Labour's interest free loans policy.

The initial estimate put it at $390 million by the third year, $90 million more than in the figures later released by Mr Cullen.

Helen Clark says there are many reasons why those costings are unsound. She says the government has had to wrestle with Treasury consistently underestimating the surplus so there is no way she will accept its first loan costings.

The high take-up rate Treasury had used to cost Labour's interest-free student loan policy was "not a valid scenario", she said.

The documents predicted the uptake of student loans would increase to 95 per cent for fulltime students by 2008.

But Helen Clark said she did not believe there would be such a high uptake.

"We make assumptions about what is a likely rate of borrowing," she said. "We know that when the interest free while studying came in, the same old critics said that every student would go out and borrow. Actually, they didn't.

"There was a blip but then it resumed the normal course for borrowing. People don't borrow unless they have to..."

She had not seen the documents but said she had accepted advice from ministers about the costings -- that in the first three months this current financial year it could cost about $100 million, rising to about $300 million for a full year.

"We haven't assumed that 100 per cent of all people who could take out a loan would take out a loan. We don't think that's a sensible assumption," Helen Clark said.

However, National finance spokesman John Key said the second set of costings -- requested by Dr Cullen and using his political assumptions -- were "simply preposterous and defy belief".

"He wrongly believes that the decision to offer interest free debt will lead to almost no increase in borrowing behaviour," Mr Key said in a statement.

Student debt would increase under Labour and it was a scandal the party had criticised economists who made similar predictions to the treasury figures, he said.

But Dr Cullen said Treasury's original costings had assumed course fees would rise 3.6 per cent a year, which ignored Labour's fee capping, and also did not take into account Labour's policy of granting 50 per cent of students an allowance.

"If you take all the worst case assumptions then you can make it look bigger," Dr Cullen said.

"The Treasury costings have almost been effectively disowned by Treasury itself and in my view have no credibility, that's why I wrote back to them and said I want them to re-cost on this basis."

Dr Cullen said the second set of costings showed its policy was affordable.

- NZPA, NEWSTALK ZB