Albanese government called out over $3.2 billion ‘stealth tax’ as HECS debt indexation date comes under the microscope

Labor has been called out over a $3.2 billion burden plaguing Australians that has been labelled a “stealth tax”.

Independent MP Monique Ryan on Monday introduced a bill in parliament to move the HECS indexation rate so that Australians were not making unnecessary payments on their student debt.

“You end up paying indexation, which is effectively interest, on debt that you’ve already repaid,” Ms Ryan told the ABC.

“You wouldn’t accept that on your credit card, you wouldn’t accept on your mortgage, but we’re expecting graduates to basically end up paying back more than they should on their HECS debts.”

Australians with a HECS debt pay off their balance over the course of the year but none of this is applied until tax time in July.

These debts are indexed to inflation before the payments are applied, which means Australians are charged indexation on debt they have already paid off.

Ms Ryan has labelled this a “stealth tax” and urged Labor to act.

“I asked (Education Minister) Jason Clare about this in the House (of Representatives) a couple of weeks ago and he can’t give us a time frame,” she said.

“He acknowledges the unfairness of the indexation. He’s done that before.

“He’s also acknowledged the unfairness of the Job Ready Graduate Scheme, which doubled the cost of arts, law, finance, and economics degrees under Scott Morrison, but which has now been in place longer under Anthony Albanese.”

Moving the indexation rate from July 1 to November 1, which follows when compulsory payments are made, would save Australians $3.2 billion over 10 years.

This is according to costings by the Parliamentary Budget Office which Ms Ryan commissioned.

The move has the support of Universities Australia and the National Union of Students which both highlighted mounting cost of living pressures plaguing students and graduates.

“Students and graduates are doing it tough, and they deserve a fairer deal,” Universities Australia CEO Luke Sheehy said.

“Practical HELP reform that reduces unfair debt pressures is a meaningful step forward, alongside the bigger task of replacing Job-ready Graduates.”

The National Union of Students president Felix Hughes stressed that students and graduates currently struggling with rising rents and higher grocery bills should not be disadvantaged by this indexation.

“It’s unfair that people can be charged indexation on debt they have already made repayments towards,” Mr Hughes said.

“Delaying indexation until compulsory repayments have been credited is a simple, common-sense reform that would make the HELP system fairer and reduce the burden of student debt.”

Labor in 2024 changed HECS debt indexation to be calculated at either the inflation rate or the wage price index – whichever is lower.

It also slashed 20 per cent off all student debts in a major election promise aimed at securing young votes.