What the fees commission says about using your taxes to fund free university

President Jacob Zuma has finally released the report looking into the plausibility of free tertiary education in South Africa.

The fee commission found that free education in South Africa could be feasible – but not across the board, and not for all. Key to this, the commission found that, despite the dire need for skills in South Africa, the state simply cannot afford to fund free education for all.

However, there was room for fee-free education at Technical Vocational Education and Training (TVET) institutes in the country, which should be seen as a first-class options for those looking to further develop their skills, it said.

Whether fully funding TVET, or propping up existing funding models or developing new ones: funding remains the key question – one which is tackled by the commission in the report.

Reports over the past week have mentioned president Jacob Zuma’s “shocking” plan to find upwards of R40 billion to fund free education in the country. This has been criticized as we already sit in the face of a R50 billion shortfall, which is expected to reach R207 billion over the next three years.

Some of the ways the president is said to be considering includes hiking taxes, cutting budgets, freezing wages and even some mentions of cutting departments.

The fees commission had a more sober look at various models. The funding mechanisms highlighted in the fee report – and their biggest problems – are covered broadly below.


Hiking taxes

The first, obvious source of funding would be through taxes. The commission said that sufficient funding could be raised by hiking personal income tax (PIT), corporate tax (CIT), as well as raising VAT.

The issue with this route, the commission said, is that tax brackets have already been raised in recent years, and new tax rate for the highest earners (at 45%) has also been introduced in 2015.

These changes were made to recover funds for a tax shortfall, so hiking them even more would put an even greater burden on taxpayers.

Corporate tax in South Africa is also already high; and the commission said there would be a danger of greater tax avoidance should CIT be raised further.

Raising VAT would have the the ‘lightest’ impact, the commission said, but this would have a disproportionate effect on the poor, and should only be considered in conjunction with raising social grants payments.


BBEEE credits

The commission suggested that companies’ BBBEE contributions could be used as a further source from which to fund higher education and training.

The Broad-Based Black Economic Empowerment Act, 2003 (BBBEE Act) could be used to actively use the Skills Development Expenditure (6% compliance target) of companies to invest in bursaries for students.

A quarter of these funds could be used to fulfill this requirement. However, Treasury has pointed out that a portion of the BEE funding already goes to Technical Vocational Education and Training in the country.


Social Impact Bonds

Social Impact Bonds (SIBs) are currently being considered, though the commission notes there is no evidence, one way or the other, of their impact. This avenue remains untested.

SIBs are effectively an agreement between the government and public institutions to finance certain goals. Investors in SIBs benefit from the fruits of their funding.

In the context of university, this involves the provision of additional grant and loan funding from an array of donors and investors to cover full tuition and accommodation costs.

This, in turn, functions as an outcomes-based contracting mechanism for ‘investors’.


Reducing corruption

The one funding suggestion that didn’t carry a major caveat was the response to call for a reduction in corruption and wasteful expenditure.

Many stakeholders pointed out that by cutting corruption and inefficiencies in institutions, free higher education for the poor with support for the missing middle was feasible.

“We agree with the view that curbing such wastage and corruption would indeed create a larger public purse from which allocations to all social programmes, including higher education and training, could be supported,” the commission said.


Other findings

To support the main recommendation by the commission to establish the income contingent loan scheme (ICL), other funding to support student fees and university infrastructure were also mentioned. This includes:

  • The ICL replacing the NSFAS, but keeping the latter to administer funding where necessary;
  • The scrapping of application and registration fees at all universities;
  • R50 billion being ring-fenced from the UIF to develop infrastructure at universities;
  • Unclaimed pension fund benefits should be used to support the scheme.

Read: Treasury tried to stop Zuma’s free education plan: report

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