Australia's goods and services tax, due to be implemented on July 1, will add A$300 million (Pounds 115 million) a year to the debt that university students incur under the Higher Education Contribution Scheme (Hecs).
Education groups have called on the government to quarantine student debt from the tax. Students pay up to half the cost of their university tuition but they can defer what they owe until they graduate and are earning at least A$20,000 a year when a tax surcharge is applied to their salaries.
The amount owing is indexed annually to cost-of-living increases and rises in line with inflation. The government admits the tax will add 2.75 percentage points to the consumer price index and, as the scheme is linked to the index, this will boost student debt.
The National Union of Students calculated that the impact of the tax would increase students' accumulated debt from A$6.6 billion to A$6.9 billion next year. NUS president Lisa Johnstone said: "This increase will hit individual students hard. Modelling by NUS shows that an arts student will have an increased debt of A$433 in 2001, an architecture student faces an increase of A$616 and a law student A$720."
Ms Johnstone said the government had promised that education would be tax-free. Students who were not working would be worse off as most would not benefit from the government's promised tax cut yet would have to pay higher prices on goods and services.
Education minister David Kemp said students had benefited from the lower rate of inflation delivered by the government over the past four years and that the purpose of indexation was to maintain the value of the debt.
The money raised by the contribution scheme has enabled the government to reduce its spending on higher education. A decade ago, fees channelled through the scheme contributed 11 per cent to total university income but are now nearing 20 per cent. The proportion contributed by the government has fallen from 60 per cent to less than 50 per cent.
Vice-chancellors and the National Tertiary Education Union said students should not have to meet the additional costs resulting from the sales tax.
NTEU president Carolyn Allport said that while student debt would rise with the tax, the government would further reduce public funding. Any increase in Hecs revenue allowed the government to reduce its investment in universities by a corresponding amount, Dr Allport said. "This money will not even flow back to universities. The scheme has been used to reduce public contributions to our universities for years."
She said a simple solution was to exclude the effect of the sales tax on the price index from indexation of the contributions scheme.