For Mboweni's growth plan to succeed the ANC has to give up certain dogmatic positions that were formulated when 7% growth was the status quo, writes Adriaan Basson.
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President Jacob Zuma's announcement that students from poor families will henceforth be able to complete their studies without paying a cent has caused much debate. Before I get into my argument, I want to categorically state my principle position on this issue.
Poor students should not have to pay a cent for education until they have graduated from university. My personal struggles as a student, and those of my friends, had an intense indignity that induced unimaginable mental strain. It is debilitating for any child to go through such hardship, yet this is the reality of poor students.
The arguments I make here are merely concerned with the practicalities of achieving fee-free education. We all have a responsibility to be honest about what is possible and in how much time. Giving the public and poor students the impression that their problems will vanish in an instant is dishonest. No such thing will happen, especially not at such short notice.
Many advocates of fee-free education oversimplify the issue by saying that because education is an investment, it should not be classified as a cost. This reinvents the laws of accounting. All investments, including education, cost money, which has to be obtained from somewhere. The fact that parents are not paying anything does not mean the cost falls away. It is merely borne by the government - taxpayers in other words.
We also cannot assume that every student who gets assistance will pass, although the availability of funds may help increase throughput rates. There are students who will not make it. That is the reality of life. The state's commitment to those students does not fall away because they have flunked one year. That means the numbers will increase each year, requiring a larger pool of funds to pay for their education.
The cost of paying for their education in an unsuccessful academic year has to be written off as a bad investment, since we are using the term.
This means the investment is worth it as long as the student progresses. However, it is also possible to invest in a student who is pursuing a qualification in which it is difficult to find employment. If that student cannot find work, as it happens to about 12%-15% of graduates, the envisaged return on that investment is either delayed or is not realised.
I am not introducing these realities to discourage the idea. I am simply demonstrating that "free education" is not free. The parents simply pay no fees. Secondly, someone has to crunch the numbers to estimate the cost of the entire scheme. The country has to estimate the cost in terms of its long-term planning so that it can make sufficient provision.
Now, on to the "somewhere" from which we will supposedly get the money at this very moment. That "somewhere" is the government, taxpayers. The most important consideration is affordability RIGHT NOW. In this financial year, government revenues are projected to be R1.36trn. Expenses will amount to R1.57trn. This means we are already spending more than we make as a country. If we are to fund free higher education, whether it is for first years or for everyone who cannot afford it, we either have to borrow this money or reduce budget commitments elsewhere. The reduction of budget commitments in other areas will make whoever was supposed to receive that allocation unhappy.
Let us assume some of this will come from civil servants' salary increases. They will obviously not be happy with a meagre increase, but someone will have to break it down to them and explain that the money went to a more noble cause. Of course this explanation is unlikely to wash. The same would be true for other would-be recipients of government services which have to be reduced or withdrawn altogether.
No, we cannot raise taxes to solve the 2018 funding gap. That was supposed to be a February 2017 tax proposal, so there is an immediate shortfall. Both the president and other proponents of this idea have to be honest about the source of the money. Which departments or priorities will have their budget allocation reduced? If we are to borrow the money, as we most likely will, how much will it be and what will that mean?
Firstly, it means that the R51bn budget hole becomes bigger by the amount this will cost. Because our state finances have deteriorated badly, we have been progressively downgraded over the years – meaning we pay a much higher interest on the debt we owe as a country. No, it is not because "they" hate us. There was a time when we were super investment graded by the same rating agencies and no one wondered if they love or hate us. Claiming now that ratings agencies hate us for some unknown political agenda is shifting the goalposts and a distraction from real debate and solutions.
By the end of this financial year our total gross loan debt will be R2.5trn. This amounts to about 54% of GDP. This year alone debt service costs will amount to R163.3bn, just a few billion less than we spend on health. Within two years, assuming we do not get downgraded any further and we do not borrow more than we already have (excluding borrowing to fund free tertiary education), we will be paying over R203bn per year to service debt. By 2020/21 financial year this will be over R220bn per year.
Increasing state debt is fine if the rate of increase is lower than the rate at which the economy (GDP) and state revenues are growing. Unfortunately, in our case, state revenues are declining and the economy has slowed down almost to a crawl. To give a sense of this, the NDP requires 5.4% annual economic growth if we are to meet some of its targets. We will be lucky to get 1% for 2017.
That leaves us with two options, and both have severe consequences. The first is to increase personal and corporate income taxes. This can always be done but as with everything else we have to consider the impact. Taxing companies and people more has consequences.
For people it means reduction in consumption. You may change your DSTV subscription to the compact version or cancel it altogether, for instance. You may buy less alcohol and cigarettes or cancel your gym membership. All this cancelled expenditure negatively affects revenues somewhere. In the case of companies, the less revenue they make, the less tax they pay. In real terms it may be that an increase in corporate tax increases revenues in the short term but slower investment means state revenues increase at a declining rate in the medium to long term.
Governments do not increase taxes willy-nilly. They carefully calculate the impact. All of this is important in this debate. Just because we agree that education is an investment and poor students deserve an education like everybody else, does not mean we must not deal with the practicalities of making this a reality.
So what must we do?
First, we must accept that there are no easy choices. We will have to reduce spending in some priority areas and this will impact people negatively. The politicians must explain that this is a conscious choice and all of us who are affected will just have to survive the consequences.
Secondly, we have to agree that poor students must be prioritised. As much as students may feel passionately about fee-free education for everyone, government finances are in a dire state. There is simply no more money in the kitty. We are living beyond our means as a country (see table).
Thirdly, the state's commitment to fund fee-free education must be accompanied by a detailed analysis of universities' cost structures and a proper recognition of their constraints. They have bills to pay, research to fund and staff to pay. They have to maintain buildings and build new facilities. The money from government is just not enough. They cannot be straddled with a commitment that will, in no time, compromise the quality of education students get.
Fourth, fee-free education cannot mean admission for everyone who qualifies. There are only so many desks and lecturers. If this process is handled recklessly we will soon deliver exceptionally poor graduates, if any, to the very economy the theory of "education as an investment" hopes will repay the money with faster GDP growth.
Finally, we must accept that until we can afford to offer fee-free education to everyone, we must work on a formula where parents and the state share costs. Parents must pay what they can afford while the state fills in the rest. In this formula, private sector contributions can be included to subsidise the scheme through corporate bursaries. Only parents who cannot afford must be exempted from paying anything.
Evangelists of fee-free education have a higher moral purpose but they have a duty to study and share the practicalities and constraints; and not to mislead the public with tales of silver bullets.
Songezo Zibi is an author and former editor of Business Day.
Disclaimer: News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.
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