Fee-free university education 'regressive' - Davis Tax Committee report

Cape Town - The Davis Tax Committee (DTC) on Monday said fee-free higher education for all tertiary students in SA, including the wealthy, was not “financially possible or desirable in the short-to medium term”.

The committee, chaired by Judge Dennis Davis, was set up in July 2013 to assess South Africa’s tax policy framework and submit recommendations to the finance minister.

In its report on the funding of tertiary education, one of six reports made public on Monday, the nine-person committee concluded that a “blanket ‘fee-free’ policy is clearly regressive and amounts to a large additional subsidy for the rich and goes against the grain of the progressive commitments of the Constitution”.

‘Pragmatic approach’ 

The committee’s 8-page report called for a "pragmatic" approach to funding tertiary education that took SA’s budget constraints into account. 

The committee estimated that, at a conservative estimate, it would cost an additional R60bn to fund all SA university students for one year. The report dealt only with universities, and did not include TVET (Technical Vocational Education and Training) colleges and other forms of education.  

“Unfortunately South Africa cannot afford to provide comprehensive university grants to all students that qualify to go to university,” stated the report.

“Doing so would require a reduction  - in absolute or inflation-adjusted terms - in existing budgets such as health, basic education and social grants or, if these expenditures are kept constant, then finding at a conservative estimate, an additional R60bn in tax revenue which at 1.5% of GDP is unrealistic.”

The DTC report was the second tertiary funding report released on Monday. 

The Heher Commission into the Feasibility of Fee-Free Higher Education and Training concluded there was currently no capacity for the state to provide free tertiary education to all students in the country.

READ: SA doesn't have money for free higher education - Heher Commission

Hybrid model 

The DTC report’s authors stated that a “hybrid model” of tertiary fees, similar to what is in place at the moment, was the best option for university student funding. 

This includes grants for the poor, government-backed-loans for the so-called "missing-middle" and fees for the wealthy. 

“While it may not be the most politically palatable option it [the hybrid model] does provide the largest immediate reduction in financial exclusion for the smallest government expenditure." 

Instead of having to raise an additional R60bn, the DTC said that the under the hybrid model SARS would have to raise R15bn per year, which it said was "feasible". 

How to raise the cash?

“We estimate that raising the top marginal personal income tax rate for individuals by 1.5% points would yield an additional R5.1bn," stated the report. 

"Increasing the Capital Gains Tax inclusion rate for corporates from 80% to 100% would yield an additional R1.4bn. An increase in the Skills Development Levy of 0.5% would yield an additional R8.8bn.  These three items together would yield R15.3bn." 

The DTC noted that, having submitted the report to Finance Minister Malusi Gigaba, the question of how to proceed was now in his hands. 

“The Minister will take into account the report and recommendations and will make any appropriate announcements as part of the normal budget and legislative processes,” it said. 

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