Dispelling myths around higher education funding
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In mid-December 2017, with relatively little consultation or planning, Zuma announced that in 2018 free higher education would be provided to all new first year students from families that earn less than R350 000 a year.
Having participated in the 20-year review of South African higher education in 2013, advised parliamentarians on different funding proposals in 2015, and engaged with a report by the commission Zuma set up to examine fee structures, it becomes apparent to me that it is critical to debunk a number of prevalent myths around higher education funding.
The current public “debates” contain many myths about what free tertiary education would mean. Unless these myths are unmasked the free higher education debate will remain misguided. In many respects, Zuma’s proposal is the worst kind of populism. It’s been sold as a radically progressive policy that can be achieved with no negative consequences. But it will actually do very little for the neediest South Africans.
Myth 1: Spending on higher education is about helping the poor.
When the Fees Must Fall movement emerged, it insisted its fundamental demands were based on concern for poor South Africans. The movement argued that this group was effectively excluded from higher education or disadvantaged in their studies because they could not afford the fees.
The idea that the movement for free higher education is based on a concern for poor youth is clearly absurd when you consider that only 5% of South Africans aged between 15 and 34 are students in universities, while 34% are unemployed.
A recent, comprehensive evaluation by South African and international academic economists for the World Bank, examined the effect of government spending and taxation on inequality. Using data on who pays taxes and who benefits from different kinds of public spending, it found that higher education was the least progressive of all social expenditure.
Myth 2: No consequences for increasing taxes or increasing borrowing.
Even if higher education is not the most progressive way to use public money, some supporters of free higher education have argued that it could be more progressive than existing studies suggest - provided the money is raised from wealthier South Africans.
Strictly speaking, this is true. The problem is that supporters of Fees Must Fall have written about possible ways of raising revenue as if the money is effectively free.
Proposals such as “double the skills levy on companies” or “increase income taxes” are empty as they fail to address the negative consequences of tax increases.
A higher skills levy, paid by firms to fund national training initiatives, means lower profits for firms and potentially less investment. Higher income taxes could lead to greater tax avoidance measures, shifts in how employers remunerate employees, or a reduction in people's working hours. All these could lead to revenue decreasing.
Such dynamics need to at least be taken into account when tabling such proposals. But this has not happened.
The result could be a reliance on taxes, like VAT, that are harder to avoid because they're paid by the vast majority of South Africans. There's a perverse consequence to all this: “free higher education” could actually increase inequality.
This myth-making has recently been compounded by Zuma’s proposal and its advocacy by one of his advisors, Morris Masutha.
Myth 3: Free higher education will reduce youth unemployment and save on future social spending.
Masutha claims that free higher education will “fund itself”, primarily by reducing future social security spending on social grants and government-built houses. He insists that abolishing fees will lead to higher economic growth.
Given the tiny proportion of poor youth who can access higher education through their basic education results, the claim about social expenditure is clearly false.
There is a positive relationship between higher education and economic growth. But the current proposal could only “pay for itself” if it produced dramatically more graduates and so increased their economic contribution.
Myth 4: Zuma’s proposal is the best way to help poor and needy students.
Zuma’s proposal contains two extremely dishonest components: the definition of “poor and working class” students and the limiting of the policy in 2018 to new first year students.
It effectively proposes that in 2018 a first-year student from a family earning R340 000 a year will get full government support. But a second-year student from a family earning R130 000 will get no support. And a student from the R340000 a year family will get the same support as a student from a R20 000 a year family.
A rough costing by the Department of Higher Education and Training in 2015 suggested that the threshold could be raised to R217 000 a year for all students. This would benefit more needy students and, at an estimated cost of R12.5billion, been far more feasible than what Zuma has proposed.
Myth 5: Zuma's proposal is feasible because it “only” costs R1 - R15billion.
Current estimates put the cost of Zuma’s proposal in 2018 at between R12 and R15billion. Some commentators have suggested this cost will remain static in future. That is almost certainly false.
It would only be true if such funding was either not extended to students entering universities in 2019 or was taken away from the 2018 cohort.
Neither scenario makes any sense. Instead, funding is likely to be extended to second-years in 2019 and third-years in 2020. That will likely lead to an annual cost of R40bn or more.
An increase of R12 to R15bn may be affordable. But a R40bn increase is an entirely different proposition. - The Conversation
Muller is a senior lecturer in Economics and Research Associate at the Public and Environmental Economics Research Centre (PEERC), University of Johannesburg