Don’t tie up money in Education Trust, cut taxes instead

The proposed Queensland Education Trust has the look of a policy born out of a focus group, and Treasury must have been asleep when the policy was under development, because the proposed policy fails on basic public finance and economic principles. There are at least four problems with it I see:

  1. it would tie up a substantial sum of money that may have a better use in the future (i.e. it reduces our budgetary flexibility);
  2. while Queensland is still in debt, the Government’s primary focus should be on reducing debt and restoring our AAA credit rating so we can save around 20 basis points (0.2 per cent) on the cost of our borrowing;
  3. if Queensland gets out of debt, the community would likely get a better return from a cut in taxes, especially the highly inefficient stamp duty on property transactions; and
  4. it will have high administration costs and cause a lot of community angst as it isn’t obvious how you define a Queensland baby for the purposes of the Education Trust (e.g. what if someone is born here but only lives here the first six months of their life?).

The discussion paper at least acknowledges the problem of defining a Queensland baby and ensuring that the Trust isn’t rorted by interstate people coming to Queensland to have babies.

Also, the Brisbane Times has picked up that the per capita amounts in the Education Trust are relatively tiny and hence the trust will be ineffectual:

Student nest egg to cover first uni year

At least the Government had the good sense to announce the policy proposal in a discussion paper rather than fully committing to it yet. Deep down, Treasurer Fraser must know it’s a loser.

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