Today the government announced big changes to the HELP repayment system. Its proposal involves several interconnected conceptual and practical considerations.

The first issue is where to set the first repayment threshold – how much should a HELP debtor earn before they start repaying? The government proposal is for a higher first threshold.

The second issue is annual repayment amounts, which affect the disposable income of debtors and how long it takes them to repay their debt. The government proposal is for most debtors to repay less HELP debt each year, increasing their annual disposable income but also their repayment time.

The third issue is the method of repayment. Should it be – as we have had since 1989 – a system which levies a % of all income when income reaches a threshold, or should we have a marginal rate system, which is a levy on income above the threshold (like the current income tax system). The government has decided on a marginal rate system.

All three issues intersect with the public finance element of HELP – the cash flow implications of the changes for the Commonwealth, and the costs in interest subsidies and bad debt. These will all be negative for the government.

In this post, I will look at the annual repayment implications for debtors, effective marginal rates of repayment, and make some initial comments about selling this reform to debtors and voters.

What the government proposes

The first threshold for repayment will go to $67,000, from $54,435 for 2024-25, and approximately $56,000 after CPI indexation for 2025-26 (I have assumed 3% indexation, which seems to be around what the government has estimated).

From this first threshold of $67,000 we will move to a marginal rate of repayment, at two levels – 15% from $67,000 to $124,999 and 17% from $125,000. These rates would replace the current whole-of-income rates ranging from 1% to 10%.

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