University funding: The middle-class are already tapped out

University of Cape Town (UCT) vice-chancellor Max Price proposed on August 28 students from households earning above R500 000 a year should pay a fee increase.  "If government can't pay for fee increases, the rich can". 

Price appears not to understand the structural limitations of the economy.  His proposal is typical of populist socialist thinking that passes for economic policy in South Africa.

Who are the "rich" and “wealthy”, aside from the arbitrarily defined threshold of R500 000?  For a socialist the rich are anyone who works and pays taxes.  In South Africa they are the middle-class, with the additional caveat that they are white.

The “rich” are the 5 million taxpayers that provide Treasury with annual revenue of about R1tn, support one of the largest and most dysfunctional cabinets in the world, 17 million social grant beneficiaries and free social housing. 
 
They are supporting the highly paid, inefficient and corrupt 2.2 million strong public service for which they get poor returns. 

They pay municipal rates and levies, part of which is diverted to free basic services for the poor and to repair public property and essential services protesters like UCT's Rhodes Must Fall group regularly destroy.

They pay high fees at their children’s state schools, or astronomical sums if they despair of the mediocre educational system and go private.  

They pay high rates for private health care because the state health system is crumbling under neglect and mismanagement.  And health minister Aaron Motsoaledi would have them pay for the unaffordable national health system.

They pay high costs to secure their homes because the incidence of crime remains unacceptable high.  And they are forced to pay import parity prices for cars and maintenance to get to work to keep the economy going because transport networks, particularly rail, is scarce, inefficient and failing.  

Of course, food and other essential expenditure are increasing above inflation, and the poor also have this burden.  Even the middle-class is looking for ways to cut costs.

The rich, as UCT define them, are paying for the damage to the economy of the meltdown of the ANC and its internecine fight for state resources that caused the loss of value of the currency and wiped off about R156bn from their pensions, savings and investments.

If we assume a two-parent household, each would earn in excess of R250 000, starting just over R20 000 a month.  People in this bracket are not rich.  They are semi-professional, mid-level white-collar workers.

Is it fair to ask them to pay more, and if it is, how much more revenue would it produce for the university?  Surely it would not make a significant dent in the funding deficit of R4bn for 2017-18?

A sliding, progressive fee scale would be palatable if South Africa’s population was economically homogenous and more people paid tax.  But it’s not with only 4.9 million individuals who were assessed for the 2014 tax year.  

Because this minority (out of the total population) are already paying taxes from which universities derive the bulk of their income, it is not equitable at all.  In fact, Price is proposing a form of wealth tax, or alternatively, a welfare subsidy.  

In November 2015 Judge Dennis Davis, head of the Davis Tax Committee, warned of a tax revolt if government does not address corruption and spend taxpayers’ money wisely.  He said South Africa should not have built two new universities but instead have invested the money in a national bursary fund, which would have ensured deserving students received “free” tertiary education.

Price does not indicate if R500 000 is before or after tax, and if household expenditure and indebtedness were considered.  Reports state 86% of the population have debt and 10.3 million have difficulty meeting monthly repayments.  

The weak economy, inflation and interest rate increases, and South Africans’ consumer-driven expenditure, are contributing to high levels of indebtedness.  Households most affected are the middle-class – those that fall squarely within UCT’s “rich” category.  

I doubt Price and UCT devoted much thought or investigation on the full economic impact on affected households, or whether it would make a lasting, material difference to the funding crises. 
 

But if it’s anything like their inept management of events on campus last year and recently, then it is a superficial, inadequate and knee-jerk reaction not informed by the economic reality facing South African households.  

The proposal is typical of socialist-driven agendas and idiot policy proposals government, ANC and left regularly vomit up.  If Price is honest, he might say it’s targeted predominantly at affluent white households because the majority of black households earn below the threshold (except high-ranking government officials).

In his article “Blade does not seem to have learnt fees lesson” Mike Wills calls the Fees Commission a “time-honoured fudge” and the matter “doesn’t need a judge (but) policy, politics and budget priorities”.  

It needs courageous decision-making of which there is none from the president down.  The underfunding of universities is like other matters of national importance – energy, state enterprises, etc – government ignored and mismanaged.  

South Africa already spends about 20% of total expenditure or 7% of GDP on education, one of the highest in the world.  Free university education is therefore not possible.  The optimal solution is a national student fund, as Judge Davis said.  But NSFAS, like other government entities, has mismanaged its affairs and allowed R20 billion (!) of student debt to accrue.

Black South Africans in particular believe a university education is a way out of poverty, and cynically, for government, dumping scores of unskilled youngsters at universities is a way to temporarily mitigate the high unemployment rate.

Perhaps some universities should be scaled back by reducing the number of students and allowed to focus on high-merit scholarship and research, as a few of them once did, and not become, as experts fear, low-quality degree factories.  

At the same time direct a meaningful portion of higher education funding and prospective tertiary students to the neglected, but an upgraded, TVET college system.

But the tipping point of the immediate crises and stale mate – 0% increase for 2016 and uncertainty about 2017 and the future – started at UCT last year in the consequence-free environment where executive management, led by Price, capitulated to violent and threatening fallist protestors.  

UCT, still considered South Africa’s leading university but no-one knows for how long, therefore has a responsibility to take some leadership to find a way out of the morass.  Instead the best they offer is the golden teat of the middle-class taxpayer who must cough up more and more, and pay for their recklessness and government’s incompetence.

This is an edited version of the article previously published in Politicsweb.