The government is considering drastic budget cuts to fund free higher education, including cutting social grants, freezing the roll-out of RDP houses and increasing taxes.
With the country facing an unpre-cedented R50.8‑billion revenue hole, a treasury document has been put before President Jacob Zuma by the presidential fiscal committee, outlining possible areas where budgets could be slashed to find the money.
The committee is looking into how cuts could fund both the existing deficit and free higher education for poor and working-class students. The free education portion alone is estimated to cost an extra R30‑billion.
Cuts to grants and housing, halving the armed forces budget, curbing infrastructure spending and freezing civil servant wage increases are some of the options that have been put forward. An increase in the value added tax rate is also a possibility, as is the sale of state assets and reducing the number of departments. Some of these options had already been mooted in government and other circles to fund the existing budget shortfall.
“Government is working around all the options on providing free education. But for you to be able to provide free education, you do need to cut somewhere, so that’s been the challenge,” a senior official said.
Even without the mooted introduction of free higher education from next year, the government’s finances are already in trouble.
In his recent medium-term budget, Finance Minister Malusi Gigaba revealed that the revenue shortfall will be R50.8‑billion this financial year, rising to R69.3‑billion in 2018-2019 and R89.4‑billion in 2019-2020. He warned that servicing debt would swallow an ever-growing portion of government income, rising to 15% in the coming three years.
The presidential fiscal committee was established to find ways to return government finances to a sustainable path.
The current policy proposal was driven by Morris Masutha, an official confirmed.
It is not clear how the committee’s work ties in with work done by the Heher commission into the feasibility of fee-free higher education.
The treasury, as well as the departments of higher education and planning, monitoring and evaluation, referred queries to the presidency.
Presidential spokesperson Dr Bongani Ngqulunga did not answer specific questions, but said: “The interministerial committee responsible for the funding of higher education, chaired by the minister in the presidency, working with the presidential fiscal committee, is assisting the president to process the Heher commission report. The president will make an announcement soon on the report.”
Masutha, who heads up the Thusanani Foundation, did not respond to several requests for comment. But in a proposal the foundation made to the fees commission last year, it estimated that free tertiary education for poor and working-class students would cost a “conservative” R35‑billion to R40‑billion.
To fund the initiative, the plan included increasing the skills development levy by 2% — which it calculated would raise R27‑billion “instantly”, increasing corporate tax by 2% to “instantly” bring in another R13‑billion, and increasing income tax by 2% for the top-end earners to bring in R8‑billion.
Khaya Sithole, an accountant and academic who worked with students to formulate a funding model for free higher education, said what Masutha presented to the fees commission was more of a political and ideological position than a model.
“Unless there have been some significant revisions since he presented, it is difficult to imagine how it can be implemented by 2018,” Sithole said.
Funding free higher education is seen as a worthy goal but it would be “completely irresponsible” to promise this without cutting programmes, said a senior official with knowledge of the proposals. It would entail politically difficult choices in terms of revenue-raising measures and spending cuts, the source said.
Students from households earning less than R120 000 a year are eligible for assistance from the National Student Financial Aid Scheme.
But trade unions are opposed to VAT increases, which will have a negative effect on the poor, and to halting salary increases for state workers.
An ANC national executive committee (NEC) member, who asked to remain anonymous, said it would not make sense to cut infrastructure programmes because they stimulate growth. The NEC member also cautioned against increasing VAT because it “is a regressive tax, which affects both the rich and the poor”.
But if the government did not make such choices, it would be forced to go to the International Monetary Fund, which will “make those choices for us”, said the NEC member.
Cosatu president Sdumo Dlamini said the labour federation supports free education for cash-strapped students but rejected any suggestion of a freeze on workers’ salaries.
“Cosatu would not expect workers to sacrifice their demands for salary increases because government has not done its work,” he said, citing the auditor general’s finding that more than R30‑billion is lost on wasteful and fruitless expenditure every year.
Cosatu general secretary Bheki Ntshalintshali said money could be found by doing away with deputy ministers and cutting benefits such as bodyguards, cars and houses for ministers and ambassadors.
The ANC’s economic transformation head, Enoch Godongwana, said he sympathised with the treasury’s proposed measures to deal with the shortfall and funding free education.
“The truth is there’s no doubt we need some cost-cutting measures. If you lose R50‑billion, you will have to [increase] revenue and cut costs or do both. Having done that, the debate becomes what you cut and what not to cut,” said Godongwana.
A large shift in the budget between now and February is impractical, said Andrew Donaldson, a former deputy director general at the treasury.
The national budget mainly finances provincial education and health, police, social grants and central administration functions such as home affairs and justice, he said, and there is little scope for reducing these allocations. Although wage increases need to be kept in check, he added, a freeze on salaries and employment would be very damaging.
Over a longer timeframe, however, it would be possible to consolidate some departments and agencies and control employment and salaries in public entities more tightly.
The Democratic Alliance has called for a comprehensive spending review. It estimates that R13.8‑billion could be saved in three years if the Cabinet was cut to 15 ministries and that freezing government employee salaries could save up to R129.1‑billion.