It is generally political poison for governments to increase income taxes but that is what the government has done with its decision to change the repayment thresholds for the Help loan scheme. The decision will see people, who are earning less than the median wage and at the point in their life where they are just beginning to build up some wealth, being hit with a tax rise of up to 2.5%.

Across the developed world one consistent in employment is that the better educated you are the better is your ability to get a job.

The Australian data certainly shows this to be the case.

At the moment, the unemployment rate for those with a diploma or better is 3.7%, compared with 8.5% for those who only attended some level of high school. For those who finished high school in year 11, the unemployment rate is a whopping 11.7%:

So there is clearly a benefit to getting a tertiary education but there is also a cost – a cost that is borne by the student and by taxpayers via government funding of education.

The current tertiary system is essentially a joint payment one and it is one where students are going to soon be increasing their contribution.

On Tuesday the government announced next week’s budget would contain cuts to funding of universities through an “efficiency dividend” that will lead to increases in the cost of degrees and changes to the threshold repayments for the Help loan scheme.

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Since its introduction in 1989, there has been a repayment-free threshold for Hecs/Help debt. The reason for this is that while graduates generally will earn more over their lifetime, the starting salary is generally well below the average wage. The other issue is that, unlike normal income tax, the Help loan repayments apply to your entire income.

So, for example, if you earn $55,000, you must pay 4% on all of that amount in Help debt but 32.5% income tax only on the amount over $37,000, and 19% on the amount you earned from $18,200 to $37,000.

So when Help kicks in, it really kicks in.

If you earned $54,800 you pay $0 in Help debt but if you earned $54,900 you now owe $2,196 (4%) – the ATO has a handy calculator to work it all out.

That’s why the repayment thresholds have historically been quite high compared with average incomes.

When Hecs was first introduced, the threshold was $22,000 – or equivalent to 73% of average male full-time annual earnings of $29,983.

But the gap between the thresholds and average wages has widened. The current threshold is only 65% of the average male full-time earnings and the government is proposing to lower it to $42,000 – less than half.

The government is proposing a whole new series of thresholds – shifting from 1% to 10%:

These payment rates keep the Help loan scheme very much a progressive one – you pay more the more you earn – and the changes will see almost everyone paying more than they otherwise would have:

But the big losers are those earning less than $52,000.

For them, the changes will see them go from paying $0 to now owing up to $1,298 for someone earning $51,900:

And while the new changes will also see those earning over $125,000 paying an extra $2,500, the real story is when we look at the increase in the rate of tax paid. That $2,500 is a 2% increase on the $125,000 income compared with 2.5% of the $51,900 income:

As I noted last month when looking at the latest taxation statistics, the median taxable income in 2014-15 was just $54,500 – meaning this is a tax increase that is biggest for people earning less than the median income.

Where this will also have an impact is the participation of women in the workforce – as they are much more likely to be the second income earner in a household and also are more likely to be on a lower income around the $42,000 minimum threshold.

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Earning above $42,000 now brings with it a big hit – not just in Help debt that needs to be repaid but because it is around the threshold at which benefits begin to be withdrawn. The family tax benefit part A begins decreasing at $51,903 and it ends completely at a household income of $94,316.

As David Plunkett has noted, the changes mean that for some graduates they would actually have more disposable income if they earned $32,000 than if they earned $51,000.

Not exactly the type of arrangement that would have you crying out for more hours of work.

The proposed changes will see university graduates paying a lot more – both in annual repayments and total amounts due to increases in the cost of degrees. And the ones who will feel the extra payments the most are the ones earning the least from their degree.

Amid all the talk next week about the budget – with all the usual good news for families and young people – it is worth remembering that this week the government has just hit young people earning less than median income with a nice big tax hike.