National’s online calculator does the basic comparisons between National and Labour for students. However it doesn’t take into account the fact people do not stay on the same salary for life etc.
Therefore I have put together my own calculator in excel. Now do let me know if there is an error in it, but I have tested it and it looks okay. It takes account of both current interest writeoffs, National’s tax deduction policy for interest and also tax cuts which can be used as voluntary repayments.
Basically it allows you to plug in five variables (highlighted in bold):
* Your starting/present income
* Loan Principal
* Interest Rate (keep at 7% unless you want to play)
* Annual salary increase (Labour recommends on their calculator this be at least 3%)
* Inflation Rate (Currently 2.8%, long-term should be 1.5%)
Now using the standard Labour example of $40K loan, $38K salary, 3% salary growth and 2.8% inflation the calculator shows 15 years to pay it off under Labour and 13 years under National. Yep that’s right pay it off two years earlier and also once paid off you also get all the benefits of future tax savings.
On a $38,000 starting salary you would need a loan balance of over $100,000 to be better oiff with Labour.
The only thing not taken into account, I think, is Labour chewing gum promise to move tax thresholds every three years. It isn’t that major and besides I suspect in three years National would be looking at a further round of tax cuts anyway.
Anyway have a play – feedback welcome – and feel free to pass on.