JOHANNESBURG - Two government initiated reports on the feasibility of fee-free education – one by the Presidency and one by the National Treasury – suggest a “cost sharing model” to fund future tertiary education.
The Davis Tax Committee and the Heher Commission of Inquiry released their recommendations simultaneously amidst reports that President Jacob Zuma has his own plans about future funding.
National Treasury’s deputy director-general Michael Sachs has reportedly resigned due to the meddling of the president in the budgetary process. The rand took a knock on the back of the news of his resignation.
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 get 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 tax to gross domestic product ratio’s in the world. Taxpayers cannot be expected to pay for everything.”
However, he expressed concerns about the impact of students defaulting on the repayment of loans.
“This may well end up being just another government guarantee that becomes the responsibility of taxpayers,” Schussler warns. The Heher Commission recommends 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 the student graduate and earn a specific income threshold they will start repaying the loan.
“Should the student fail to reach the required income threshold, government bares the secondary liability,” the commission recommends.
It is recommended that the loans are made available to students at public and private universities and that no “means test” is used in the offering of loans.
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.
“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.
The Davis Tax Committee said fee-free higher education for everyone (including the wealthy) was not “economically financially possible or desirable”.
If it was introduced it would cost the economy R60bn extra per year.
National Treasury estimated the cost at R30bn per year, but without including accommodation, books food or living expenses, hence the figure of R60bn was adopted.
The Davis committee said unemployment under graduates in South Africa was around 6percent. How many students graduate, how much they earn and whether the money can be collected, will influence repayment of the loans.
According to the Davis committee the news was good on all three fronts.
“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 notes.
“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 suggests raising R15bn in revenue per annum by raising the top marginal personal income tax rate for individuals by 1.5 percentage points (R5bn), an increase in the Capital Gains Tax inclusion rate for corporates from 80percent to 100percent(R1.4bn), and an increase in the Skills Development Levy of 0.5percent (R8.8bn).
Engel said the raising of additional taxes in the current climate was highly questionable. “Individual taxpayers are treated as a never ending supply of tax revenue.”
The top marginal rate of 45 percent for individuals is already unaffordable. South Africans cannot afford more, said Engel.
- BUSINESS REPORT