Free education, NHI ‘unaffordable’

POST DOWNGRADE: SARS MAY BOOST TAX COLLECTION

The introduction of these policies will signal a shift in tax policy, an expert warns.

The proposed NHI is unlikely to be sustainable unless there’s sustained economic growth – DTC.

SA can’t afford free tertiary education or national health insurance (NHI) given its precarious fiscal position. The introduction thereof would signal a shift in tax policy, a tax expert has warned.

Cliffe Dekker Hofmeyr’s Professor Emil Brincker says tax proposals in the post-Gordhan era don’t signal any significant changes in tax policy, but are attempts to address short-term concerns like the budget deficit.

“I think where it will have an impact is if they introduce the free tertiary education. There you will have to collect a significant amount [of tax] and then also, secondly, NHI, if they introduce that.

“At this stage, SA cannot afford either of them because we don’t have the monies, but if they introduce that it will definitely have a significant impact upon the policy that existed to date.”

S&P Global Ratings cut SA’s local currency rating to non-investment grade on Friday. Moody’s kept the rating unchanged one notch above junk, but put the rating on review for downgrade.

The downgrade will make it more expensive for government to borrow, put pressure on an already-constrained budget and raises new questions about the affordability of big ticket items.

The vast amount of money needed to fund large projects will likely require additional tax revenues.

Following the mini budget, which showed that tax revenue is expected to fall almost R51 billion short of earlier estimates, tax commentators warned that SA may have reached a point where further tax hikes won’t necessarily result in proportionately higher tax revenue, and risks impeding economic growth even further.

A statement issued on Monday appears to acknowledge President Jacob Zuma’s plan for free tertiary education isn’t realistic in the current environment.

“President Zuma has directed that technical discussions of the presidential fiscal committee take place … to focus on four areas, with a view to the proposals that emanate from this process being considered through the budget structures in preparation for the 2018 budget,” the presidency said.

One area is the development of a plan to enable the proposal for fee-free higher education for students from poor and working-class backgrounds, which would be implemented “in a fiscally-sustainable manner”.

A Davis Tax Committee (DTC) report said it’s too early to make explicit recommendations about a proposed funding mechanism for NHI and that the large degree of uncertainty and lack of understanding of how the system would work are concerning.

The DTC also warned that the proposed NHI is unlikely to be sustainable unless there’s sustained economic growth.

“The magnitudes of the proposed NHI fiscal requirement are so large that they might require trade-offs with other laudable NDP programmes such as expansion of access to post school education or social security reform.”

Brincker says following the downgrade, taxpayers can expect an emphasis on collection efforts by Sars, which could manifest in an increasing number of tax audits. Tax hikes are probably also on the cards in February.