Most young people 'following their noses' to find work, not dodging student loans, economist says

Young people who left New Zealand in recent times might have been forced to do so by the employment market, economists say, rather than deliberately choosing to take their skills offshore.National announced at the weekend it would cut the repayment rate for New Zealand-based student loan borrowers from 12 percent of their income to 10 percent from April next year.The repayments become compulsory once someone earns more than $24,128 a year.But overseas borrowers will face stiffer penalties.Finance Minister Nicola Willis said it was not fair that graduates could take their skills offshore after receiving a heavily subsidised tertiary education, and not repay their loans.Interest is applied to student loans when someone is out of the country for more than six months.National said it would add 1 percent to the interest rate, taking it to 6.6 percent at the current rate, with tiered penalties for sustained default, on top of existing late payment interest.They would also have to clear their student loan before accessing KiwiSaver and there would be tighter arrest settings for serious and sustained defaults.Overseas borrowers account for 93 percent of student loan debt and only about 30 percent meet their repayment obligations in a typical year, compared to 95 percent of borrowers within New Zealand.The total number of New Zealand-based student loan borrowers increased by 0.8 percent in the year to March, and the number of overseas-based borrowers lifted 0.3 percent.Westpac chief economist Kelly Eckhold said it was a challenging job market for young people."You have to find a job where you can find one. Youth unemployment is very high right now… you could understand that people that are in that part of the labour force, they're probably just following their noses in terms of where the opportunities are. And it tends to be overseas as much as within New Zealand."He said it was prudent for the government to try to have student loans repaid more quickly from people who were overseas, when there was a higher default rate among them.But he said it might be seen as unfair to increase their interest rate.He said higher repayments for student loans were unlikely to be the deciding factor for anyone weighing up whether to move. "I think they're much more driven by changes in the labour market status in New Zealand versus overseas."'Fewer New Zealanders appear to be leaving'Infometrics principal economist Brad Olsen said many of the people who had left New Zealand in recent years may have done so in search of work.But he said there were some signs that things were changing.The number of New Zealand citizens arriving back in New Zealand permanently had increased 6.1 percent over the past year, to just over 26,000.The number of citizen departures had fallen 2.7 percent to nearly 38,000."Previously, there was a well-trodden path for young Kiwis to head to the UK on a Youth Mobility Scheme visa. The visa, available for 18-35-year-olds, allows Kiwis to live and work in the UK, and is often used for lawyers and various others to provide both new work experiences and easy access to Europe and beyond, as a working OE."It would seem that such interest in moving to the UK from NZ has reduced. UK entry clearance visas, including the Youth Mobility Scheme, from New Zealand have dropped to their lowest outside of the Covid-19 pandemic in 20 years."He said that was probably due to a change in the UK labour market, where unemployment has also increased."More challenging job conditions seem to be making Kiwis considering a shift to the other side of the world question whether they'll find a role. It's one thing to earn London money and pay London costs - it's quite another to pay London costs while you battle it out with so many others for the roles available."The trans-Tasman flow had also stabilised."Migration decisions are ultimately about relative opportunities, and for much of the last few years New Zealanders have had plenty of reasons to look offshore," Olsen said."Higher wages, stronger labour markets, and different lifestyle opportunities have encouraged a sizeable number of Kiwis to head overseas, particularly to Australia. But those comparisons are becoming less clear-cut. Job markets in the UK and Australia have softened, Australian housing remains expensive, and higher interest rates add further pressure to household finances across the Tasman."New Zealand's own economic challenges haven't disappeared, and there is still a substantial net outflow of Kiwis. But as conditions elsewhere become more difficult, fewer New Zealanders appear to be leaving and more are coming home. For anyone contemplating whether opportunities might be better overseas, the latest trends provide a useful reminder: apparently, the grass isn't always greener."'Kicking the can down the road'But National was just "kicking a can down the road" with its promised changes to student loan debt, according to a tax lawyer.David Ananth said reducing the compulsory repayment rate was not enough of a reward to stop newly qualified students leaving the country without paying their debt off.Ananth negotiates on behalf of some people overseas to get IRD to reduce the penalties his clients have incurred for not paying.He told Checkpoint he dealt with people who left this country 15-20 years ago on a daily basis, and the government's changes were not going to do much in practical terms.He said they were leaving the country for a large variety of reasons, including for health and family reasons, not just employment.It would be more effective to increase the threshold before any deductions were made from just over $24,000 to more like $30,000, said Ananth."That would have a bit more of a positive impact."He said most of the debts he dealt with were in the $100,000 to $150,000 range."That's a normal day for me, the highest I've gone is more than half a million dollars."Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make and spend money.