Economists warn Anthony Albanese cutting HECS debt, pre-election promises will keep inflation high

Anthony Albanese is being warned by experts ‘blatant vote-buying’ in the form of wiping HECS debts and pre-election giveaways will delay interest rate cuts.

Prime Minister Anthony Albanese. Picture: NewsWire / Martin Ollman

Economists are warning Anthony Albanese against launching any more populist, pre-election, cost-of-living giveaways, arguing that a loosening of the government’s fiscal strategy will further delay interest rate cuts, keep inflation higher for longer and saddle Australia with higher debt.

With the Prime Minister ­coming under pressure in parliament over his pledge to wipe $16bn of student debts, education experts say wealthy professionals will benefit most from the plan.

Australians who have completed postgraduate degrees in business and law could be $24,000 better off while doctors who paid full-fee for their medicine degrees may have about $35,000 of their debt slashed.

UNSW economics professor Richard Holden said the policy for a one-off cut of 20 per cent to student debt was “blatant vote-buying” in the vein of Queensland Labor’s strategy before the state election.

“The government’s just acting like this doesn’t count, it’s just Monopoly money, of course it does count – it’s going to add up to another $16bn to net debt,” Professor Holden said.

“There’s going to be this strong temptation to do it, but anything that looks vaguely like the Queensland electoral strategy is going to be very inflationary.”

With Reserve Bank governor Michele Bullock expected to keep the official cash rate at 4.35 per cent at Tuesday’s board meeting, former RBA board member ­Warwick McKibbin said there would not be any interest rate cuts in the near term because “there’s too much spending in the economy”.

Professor McKibbin labelled Labor’s student debt policy as “very problematic”, and was also concerned the government was loosening the fiscal purse strings in the lead-up to election.

“We saw in Queensland how much money the Queensland government was willing to put on the table to win the election and most politicians behave that way. Labor and Coalition,” Professor McKibbin said.

The Australian reported after the Queensland election, at which Labor lost power, that Mr Albanese was under internal pressure to mimic former premier Steven Miles’ cost-of-living ­strategy, which included 50c ­public transport fees, free school lunches and vehicle registration discounts.

Peter Dutton used federal ­parliament’s question time on Monday to attack the student debt pledge as “reckless spending” while accusing Mr Albanese of “damaging the economy and keeping interest rates higher for longer”.

Mr Albanese hit back at the Opposition Leader, declaring his government had halved inflation, created one million jobs and ­delivered real wage increases.

“They have never seen any cost-of-living relief they didn’t want to bag,” Mr Albanese said.

“It is not surprising that they do not support this relief either”.

Mr Albanese said cutting 20 per cent of HELP debts would encourage people to go to universities, despite the measure only impacting Australians who had already been in the higher education system.

With opposition Treasury spokesman Angus Taylor declaring Australia was in a “household recession”, Jim Chalmers said GDP per capita had also gone backwards under the former ­Coalition government.

“If you care about per-capita living standards in this economy, you’ve got two options,” the Treasurer told parliament .

“One option is to try and help people where you can, that’s our approach,” Dr Chalmers said.

“The other option is to oppose wage increases and cost of living help which is the approach of those opposite. The difference is we’re doing something about it.”

The warnings against a pre-­election cash splash came as the RBA board convened in Sydney ahead of Tuesday’s impending ­interest-rate decision, with economists arguing that the underlying inflation rate of 3.4 per cent in the year to September was not low enough for Ms Bullock to consider cutting rates.

Amid sticky price pressures, particularly in the labour-­intensive services sector, investors are not expecting the central bank to cut rates until its meeting in May next year, threatening to dash Mr Albanese’s hopes of a pre-election rate cut. The next election must be held by mid-May.

The RBA will on Tuesday release its economic ­forecasts, which will give an indication of the ­central bank’s expectations for ­inflation, employment and wages.

RBC Capital Markets chief economist Su-Lin Ong said heightened levels of public spending raised risks of later and shallower interest rate cuts.

“If we get more measures around everything from housing assistance, to extension (of) the utility rebates, to childcare and family measures, that’s got to be the risk as we head into 2025,” Ms Ong said.

“Anything that is additive to demand at this stage in the cycle is not super helpful for the RBA. There is some tension there.”

Following a string of big-­spending state and federal budgets this year, the central bank’s board pointed to the strong growth in government expenditure – which hit a record 27.3 per cent of GDP in the June quarter – as one of the factors that is prolonging its fight against inflation.

At a Labor rally in Adelaide on the weekend, Mr Albanese ­declared student debts would be reduced for the three million ­Australians with HELP, a VET ­Student Loan, an Australian Apprenticeship Support Loan and other income-contingent student support loans held on June 1, 2025.

Andrew Norton, a higher education policy professor at ANU, said higher education students who had taken out large FEE-HELP loans of more than $100,000 for full-fee-paying ­places stood to benefit the most from the proposal.

Professor Norton said FEE-HELP loans covered full-fee-paying places for some domestic postgraduate students at public universities and all domestic ­students in private universities.

FEE-HELP loans differ from HECS-HELP which are loans for student contributions at prices set by the government for those who obtain a commonwealth-supported place in a course.

“Obviously a 20 per cent cut to total debt benefits the people who owe the most money,” Professor Norton said. “Of course you still owe the other 80 per cent – it’s still a lot of money for some of these people – but they will benefit the most.”

In 2024, the HELP loan limit for most students was $121,844, but for students studying certain medicine, dentistry, veterinary ­science and aviation courses, the limit was $174,998.

Those who will benefit the most are those who have reached their loan limits, and who may save about $24,000 and $35,000 respectively.

This will include Australians who paid full fees for their medicine degrees, as well as some domestic students who have paid for full fee juris doctor degrees and MBAs, which can cost more than $100,000 and require students to already hold an undergraduate ­degree.

Professor Norton said the policy would also favour recent graduates who hadn’t made many repayments, compared with those who graduated 10 years ago and were close to paying down their debt.

“While they will get a 20 per cent cut, that may not be very much money, because their balance is now fairly low,” he said.

“It is going to have these sort of semi-arbitrary effects, because where you are in the repayment cycle has a big impact. All the people who have made huge voluntary repayments over the last two years might say … ‘I’ve lost 20 per cent, I’ve paid too much’.”

Under the Albanese government proposal, 276,000 people with an outstanding HELP debt of more than $60,000 will have their debts wiped by at least $12,000, while 147,500 Australians with a debt of between $50,000 and $60,000 will have between $10,000 and $12,000 slashed.

The 250,000 people with debts of between $40,000 and $50,000 will save between $8000 and $10,000 and the 380,000 with loans of $30,000 to $40,000 will have a $6000 to $8000 reduction.

The 501,000 people with debts of $20,000 to $30,000 stand to save between $4000 and $6000, and 585,000 people with loans of between $10,000 and $20,000 will have their debts wiped by $2000 to $4000. The 791,000 people with less than $10,000 of debt will save less than $2000.