R57bn for Higher Education: recklessly throwing money at a complex problem

The populist and irresponsible announcement made by ex-President Zuma over his shoulder as he rode into the sunset – announcing fee- and-expenses-free Higher Education for large swathes of students – has been followed by an equally populist and irresponsible provision in the Budget of R57bn over the next three years to provide for it. This has resulted in a distortion of the National Budget which will give the Treasury headaches way into the future. Furthermore it has become clear that the Government does not really have a handle on how many students it will have to cover, in spite of the fact that numbers are mentioned in the Budget, and that there may be some ugly surprises emerging over time. These numbers are essentially a thumb-suck, and bear little relation to reality

In addition, what seems to be a disproportionately large amount allocated to this item over the Medium Term Economic Framework actually remains too little. To demonstrate this, let us look at the actual numbers of students at Universities, and make the maximalist assumption that all of them will get the full R75,000 a year.

The scheme will be extended to increasing numbers of students each year; this year it is only covering First Years, but then Second and Third year students, and presumably ultimately Fourth, Fifth and Sixth year students, in Professional undergraduate degrees, Medicine and the like, will be included. Postgraduates are excluded.

The Department has estimated that of the 750,000 undergraduate students at University approximately 80% are from families earning less than the R350,000 cut off which would mean that if we make the unlikely assumption of no expansion in numbers, would mean that in 2022-3 some 600,000 students would qualify for support, costing an additional R45bn in today’s money.

TABLE: Estimates of probable costs of Free University Education implemented over five years.

This table suggests that, on maximalist assumptions, the 3-year MTEF amount provided should already be over R62bn – and rising. And this doesn’t even take into account the other promises President Zuma made – to raise University subsidies to 1% of GDP, to develop infrastructure, and of course to provide no-fee education to TVET Colleges. Free higher education is unaffordable.

If we look at what has happened completely dispassionately, it becomes clear what the ANC has done; it has allowed one powerful lobby from a tiny segment of the population – militant ANC-aligned students and those to the left of them – to mount a successful, violent raid on the Treasury, at the expense of many other groupings and interests. This has been done against the advice of a R55m Presidential Commission of Enquiry - the Heher Commission - all University Vice-Chancellors and dozens of experts, many of whom gave substantial and wise submissions to the Commission.

The huge extra amounts to be spent on students represent an effective increase in our Social Spending, and should not be thought of as an increase in Educational spending on Universities themselves. And compared to other items in our Social Spending, it represents a disproportionate amount. For example, a child care grant has just been increased to R400 a month. But a student on a NSFAS grant will be given up to R7000 a month, and more than R250,000 over three years. Even if the student graduates and obtains a highly paid job as a result of getting a degree, this amount will never have to be paid back.

I know of no student funding scheme anywhere in the world which pays fully for all of a students’ costs – fees, transport, books and living expenses – on this scale. Most “fee free” systems are just that – the fees are free. And even in wealthy countries such as Scotland, the system has proved difficult to sustain at the appropriate levels over time. The amounts paid over by Government tend to shrink in real terms, leaving Universities falling increasingly below the levels of funding they need, and courting fee-paying students to make up the losses. The decline of our Universities is already palpable – they do not need anything further to push them down.

The decision by the ANC to fall-in with Zuma’s plan is of considerable concern. Free higher education is being provided in spite of the fact that it is widely recognised, including by the Governments own Financial and Fiscal Commission, that Higher Education should be regarded as both a public and a private good. Public in that it benefits the society; but private in that it gives the individual who receives it a significant advantage over those who do not. The unemployment rate for graduates, for example, is between 5 and 10 %. For non-graduates, as we all know, it is over 30%. This is the underlying reason why many believe that Higher Education should be partly paid for by the student, even if that payment entails a loan to be paid back only when the individual is able to afford it.

But the real sting in the argument when we consider how this folly will be paid for. These staggering amounts are to be paid for from two sources: VAT, which indubitably disadvantages the poor whatever the Minister of Finance might say; and from cutting other Departmental budgets quite ruthlessly. This has already led to some serious anomalies. For example one of the Departments whose funds will be raided to pay for this scheme - the Department of Science and Technology - also funds Universities: it supports Postgraduate and Post-doctoral students, academic staff, infrastructure investments and many of the most advanced research initiatives in the country.

But its budget has been cut by 14% and this is the second big cut it has experienced in two years. Will Postgraduate students and academic researchers effectively be paying for Undergraduates? So much for the so-called “fourth industrial revolution”, which will depend on very high level skills and research. We will struggle to stay in the second industrial revolution. Many other paradoxical and startling cuts will emerge over time. Provincial and Local government grants have been cut so stringently that it is likely that teachers and nurses will be retrenched before long and basic health and education will be damaged. The number of police is set to be cut. And so on.

One reading of this scheme, thus, is that it entails a transfer from the poor and the institutions supporting them, directly to the aspirant middle class. It is certainly not progressive.

It is incomprehensible that the ANC has given up on its long-standing NSFAS loan scheme, of which it was so proud, whatever its flaws. It is unbelievable that it has ignored Judge Heher’s wide-ranging and well-thought-through recommendations that NSFAS should be re-vamped and expanded. It is a shock that the ANC should have opted, instead, for a give-away of such enormous proportions, in times of serious austerity.

President Ramaphosa needs to give us his economic justification for succumbing to his predecessor’s populism, and to address the question of the whether and how this scheme will be rendered viable over the next ten years. If this cannot be done we need to ask whether he will have the courage to admit it.