Zuma’s free education will gobble up R57bn

Former president Jacob Zuma’s plan for free education is expected to gobble up R57bn of the national budget over the medium term, amid concern that the policy could be unsustainable, given the country’s low economic growth.

The Treasury projects real GDP growth of 1.5% in 2018, 1.8% in 2019, and 2.1% in 2020.

In his budget speech in Parliament on Wednesday, Finance Minister Malusi Gigaba said that providing free higher education was an important step forward in breaking the cycle of poverty and confronting youth unemployment.

The largest reallocation of resources towards the government’s priorities was for higher education and training, amounting to an additional R57bn to fund the phasing in of free tertiary education.

The department got R792bn, making it the largest single beneficiary of the budget.

“As a result, this is the fastestgrowing spending category, with an annual average growth of 13.7%,” Gigaba said.

The R57bn will be allocated over the medium-term expenditure framework period for fee-free tertiary education for students from households earning less than R350,000 a year.

This is in addition to the R10bn provisionally allocated in the 2017 budget.

Gigaba said new tax measures would raise an additional R36bn in 2018-19, mainly through a higher VAT rate — which goes up by one percentage point to 15% — and belowinflation adjustments to personal income tax.

Expenditure reductions approved by the Cabinet would amount to R85bn.

This, in addition to various other measures, would lead to a strengthening in fiscal consolidation, despite the allocations to higher education and training, Gigaba said.

In his state of the nation address last week, President Cyril Ramaphosa reaffirmed the government’s decision to phase in free higher education from the 2018 academic year.

Gigaba said providing free higher education would break the cycle of poverty and tackle youth unemployment as labour statistics showed that unemployment was lowest among tertiary graduates.

Deputy Finance Minister Sfiso Buthelezi described the free-education plan as “human capital investment”.

“We are investing in our young people … We will have a dividend that we will reap in the future,” Buthelezi in a prebudget media briefing.

An additional allocation to the National Student Financial Aid Scheme (NSFAS) will cover the full cost of study for university undergraduates and at technical vocational education and training (TVET) colleges for students whose annual household incomes are under R350,000. In 2018, the bursaries will apply to first-year students only.

More than 340,000 students at universities and more than 420,000 full-time students at TVET colleges will be funded through this new bursary scheme. In 2019, the arrangement will expand to cover firstand second-year students.

Returning NSFAS university students from households with incomes below R122,000 a year in their second, third or fourth years in the 2018 academic year will also be supported.

These students will have their loans converted to bursaries on the same terms as when they first received the financial support. This excludes TVET college students supported by NSFAS, who have always received bursaries.

The additional funding will increase the number of under-

graduate university students to be supported by the scheme from 230,469 in 2017-18 to more than 1,123,000 over the medium term, and the number of TVET college students from about 230,000 in 2017-18 to 1,137,204 over the same period.

NSFAS will also receive an additional R105m over the medium term to cater for the additional administration costs of the expanded bursary scheme.

“Policy decisions concerning issues such as historic debt, adjustment of the family income threshold, interventions to decrease dropout rates and the construction of student housing will be taken in due course. These decisions could raise the cost of the programme significantly,” the Budget Review document states.

In December, Zuma effectively overruled the Heher commission report on the feasibility of free higher education when he announced that the government would subsidise free higher education for poor and workinglass students.

The Heher commission found that the government could not afford free education for all students. It recommended that students in the technical, vocational education and training sector get free education with grants that covered their full study costs.

For university students, the commission suggested a costsharing model of governmentguaranteed income-contingent loans sourced from banks.

In 2017, the Davis tax committee came to a similar conclusion.

It proposed a hybrid system of grants for poor people, government-backed loans for the “missing middle” and fees for the wealthy, which it said would require an extra R15bn a year.