Budget leans towards the growth of middle class

The diversion of R57bn of government spending into grant funding for students at universities and colleges in the middle of a fiscal crisis, and in the context of a stagnating economy, was not the most rational allocation of resources.

Nor was it particularly pro-poor, as the budget always claims to be.

It was a result of a political ambush by former president Jacob Zuma in his final days of power. Once it was announced, it simply could not be undone.

After December 16 last year, it was inevitable.

And, although politically imposed, it will be good for SA in the longer term and for the transformation project. It will however be a very expensive way of promoting social mobility.

The intervention is a substantial and permanent change to the budget — aimed to benefit not so much the poor, but the bottom end of the middle class — and will add momentum to the process of building a nonracial nation.

In fact, the poor lost out as it was spending on poor communities — on municipal water, housing, roads and schools —that was as a result cut significantly to make way for higher education.

Freed from loan repayments (which has not been much of a success anyway), the children of policemen, teachers, nurses and administrative workers — those who earn R150,000R350,000 a year — should as a result find their way into secure middle class employment.

Once fully rolled out, just more than a million university students will benefit from free tuition in any given year, up from about 230,000 at the moment.

The numbers at technical and vocational educational colleges (TVETs) will also increase similarly.

If the system worked as it should, that would be about 300,000 graduates a year from university and the same number from colleges moving into the economy, skilled and debt-free.

But, as we know, it doesn’t. The TVET system is thoroughly broken and the university system has also not been able to produce graduates out of half of the people that enter its doors.

The social mobility prospects of attending a TVET college are, for most courses offered, close to zero.

Government doesn’t track the success of students at getting work, but a recent Swiss-funded tracker study found that TVET graduates (with the exception of artisans, who make up only a small portion) have a 50% chance of getting a job and are no better or worse off than someone who leaves school with matric.

Added to this is that 90% of those enrolled do not graduate, dropping out along the way. An expenditure review by the National Treasury in 2014 found that only 10% of college students had graduated after six years —from what are mostly threeyear courses.

The TVET system is therefore enormously inefficient from a public finance perspective and is indeed almost useless from a skills as well as social mobility perspective.

Giving the system more money (grants will now include money for food and transport) without fixing it, at least substantially, is throwing good money after bad.

The university system is also inefficient, with throughput rates standing at about 50%.

But life chances and earnings do improve immensely for university graduates, however.

The median income for people with a degree is six times higher than those without one.

All of this makes the extra R57bn (this is additional expenditure to the baselines) a very expensive and poorly targeted way of inducing a small and painfully slow change in society.

For those at the bottom nothing will change; for those with a grip on middle-class status, change will be a little faster and more certain than before the intervention.

The Treasury has always prided itself on making welltargeted interventions into the lives of the poor.

The biggest structural change to the budget since democracy in 1994 has been the social-grant system,

This was expanded conservatively at first and then more boldly as the Treasury was reassured by the policy wonks at the World Bank that its grants were reaching and supporting the most vulnerable.

But times have changed since then. The second biggest structural change to the budget has been the growth of public-sector salaries, which have consumed a growing portion of expenditure.

In 2007, wages were 32.9% of all expenditure; by 2017 this had reached 35%.

The benefit here also went to the middle classes, where the average salary increased by 29%.

As interventions in social mobility go, the growing public-service wage bill beats the higher education contribution hands down.