Macrobusiness | 17 October 2013
“The proposal is kind of bananas”, writes economist Leith van Onselen.
Think about it from the perspective of a potential investor who might consider buying a security that entitled them to a stream of future HECS repayments from former students. As they’re currently structured, HECS debts have a 0% real interest rate (they’re just indexed by the CPI), there is no fixed timetable for repayments, and unpaid debts can’t be recouped from a debtor’s estate when he or she passes away.
It wouldn’t make sense to buy such an asset at its full value, when there are other safe assets with guaranteed repayment that pay real interest. To induce people to buy his HECS securities, then, Mr Hockey would have to either:
Sell them at way below their face value; or
Change the terms of the debt by charging real interest and/or allowing the debt to be recovered from the estates of deceased debtors.