If our universities were free, this is what would happen to the fiscus

ALTHOUGH the government is spending more on higher education, economists are backing away from supporting calls for free tertiary education.

The demand on the fiscus would be large, creating another mammoth funding requirement such as a national health insurance.

This would force the government to find a steady stream of R40-billion to R60 billion a year, the equivalent of between 3% and 5% of government spending permanently, said Econometrix chief economist Azar Jammine. “It starts assuming a huge order of magnitude not dissimilar to the concept of national health insurance.”

South Africans would have to absorb tax increases, from VAT to hikes in the marginal tax rate, Jammine and other economists have said, echoing similar cautionary statements from former finance minister Nhlanhla Nene and Michael Sachs, head of the National Treasury’s budget office.

“You need to increase VAT by 2% or raise the top marginal tax rate from 41% to 50% to fund such an amount,” Jammine said. But in a society where less than 2% of people earn more than R500-million, yet contribute over 60% to all personal tax, this is not an equitable solution.

Spending on post-school education is the third-highest area of growth expected in government expenditure over the next three years, following debt service costs and social protection, according to the 2016 Budget Review.

Of the R16.3-billion Minister of Finance Pravin Gordhan allocated to the shortfall for this year’s freeze on fee increases, and to clear outstanding student debt with the state’s financial aid scheme, R8-billion was allocated to current students to complete their studies over the next three years.

But an education system that is beginning to churn out more matriculants is a stumbling block to free education.

Xhanti Payi, economist and head of research at Nascence Research and Advisory Services, said: “Even if we found the money today, I don’t know if [this would be] sustainable.”

Countries such as Germany and Belgium have rolled out free tertiary education, but their achievement is underpinned by the ability to tax excessively, and the youth population is not as large as South Africa’s, where a third of the population is under 25.

Free Market Foundation director Eustace Davie said there was unfairness in the fees debate.

“It doesn’t add up for government to increase spending on young people going to university when 2.5 million young people don’t have jobs.”

The Treasury must still plug the gap of 2017 fee subsidies for those households earning less than R600 000 a year.

It declined to comment further this week on how it would reprioritise the budget.