Cost sharing mooted for higher education

TWO GOVERNMENT-initiated reports on the feasibility of fee-free education – one by the Presidency and one by National Treasury – suggest a “cost-sharing model” to fund tertiary education.

The Davis Tax Committee and the Heher Commission of Inquiry released their recommendations simultaneously amid reports that President Jacob Zuma has his own plans about how higher education should be funded.

Tax and economic experts raised concerns about the timing of the reports and the practical implementation of the recommendations.

Mike Schussler said he supported the concept of government-backed loans for students who would otherwise not have been able to obtain a guarantee for a loan.

“The fact of the matter is South Africa needs to get its priorities right. South Africa has one of the highest taxto-gross-domestic-product ratios in the world. Taxpayers cannot be expected to pay for everything.”

However, he was concerned about the impact of students defaulting on repaying their loans. “This may well end up being just another government guarantee that becomes the responsibility of taxpayers.” The Heher Commission recommended that all undergraduate and postgraduate students be funded through a cost-sharing model of government-guaranteed income contingency loans. The loans will be sourced from commercial banks.

Once a student graduates and earns an income that reaches a specific threshold, he or she will start repaying the loan. “Should the student fail to reach the required income threshold, government bears the secondary liability,” the commission said.

It recommended that the loans be made available to students at public and private universities, and that no “means test” be used.

The collection of the loans will be the task of the SA Revenue Service (Sars).

Keith Engel, the chief executive of the South African Institute of Tax Professionals, said getting Sars to collect the loans sounded good in theory, but not in reality.

“It is questionable whether it will be able to handle this additional workload. There comes a point where the expectations of a government agency becomes too much,” said Engel.

R60bn extra

The Davis Tax Committee said fee-free higher education for everyone was not “economically financially possible or desirable”.

If it were introduced, it would cost the economy R60 billion extra a year.

National Treasury estimated the cost at R30bn a year, excluding accommodation, books, food or living expenses, hence the figure of R60bn was adopted.

“It is our view that a system of grants (free education) for the poorest students, combined with a sliding scale of income-contingent government-backed loans for the missing middle and full fees for the wealthy, is the best workable solution that currently exists,” the Davis Committee said.

“While it may not be the most politically palatable option, it does provide the largest immediate reduction in financial exclusion for the smallest government expenditure.”

It further suggested raising revenue of R15bn a year by increasing the top marginal income tax rate for individuals by 1.5 percentage points (R5bn), increasing the capital gains tax inclusion rate for corporates from 80 percent to 100 percent (R1.4bn) and increasing the Skills Development Levy by 0.5 percent (R8.8bn).

Engel said raising additional taxes in the current climate was highly questionable. The top marginal rate of 45 percent for individuals was already unaffordable, he said.

See Pali Lehohla on Page 16