NEWS ANALYSIS: SA will pay a heavy economic and political price for Zuma’s populism
The free higher education policy means the long-delayed VAT increase is now a certainty
President Jacob Zuma played his opening gambit at Nasrec early on Saturday, announcing free higher education for poor and working-class students.
What he did not tell SA, or the ANC delegates at whom the announcement was mostly aimed, is that he will have to raise taxes to pay for it.
Put in this way — as a trade-off with paying more for consumer goods through, for instance, a higher VAT rate — delegates might not have been so eager.
Earlier calculations by the Treasury estimated that raising the threshold for free education to family earnings of R350,000 would at least triple funding for the National Student Financial Aid Scheme (NSFAS) and cost the country at least R15bn.
In the next two years of the medium-term budget framework, the cost will be higher, at least R20bn or even R25bn in the third year, assuming that it is rolled out.
As the government already has a R40bn funding gap in the budget, which Finance Minister Malusi Gigaba has promised to fill with a combination of expenditure cuts of R25bn and tax increases of R15bn, this will further add to the tax burden, stressing not only consumers but also the economy as a whole.
Avoided for years, because it tends to punish the poorest of society the most, a VAT increase is now firmly on the cards.
The fiscal implications don’t end there. Rating agencies, some of which are holding fire on further downgrades, are not likely to buy a fiscal framework that commits to fiscal sustainability on the one hand and caves in to presidential populism on the other.
The political implications of Zuma’s move are even more damaging than the anticipated macroeconomic fallout.
If it was not already evident, the free education gambit was announced on Saturday for a key reason: so that Zuma can deliver the radical economic transformation he has been talking about. Students are not agitating for free education right now, and have not done so with any vigour since 2015, so this is much more about Zuma and Nasrec than it is about students and education.
Zuma also had a 750-page comprehensive report, which he himself commissioned, on which he could draw to find a sustainable funding plan for higher education. He ignored this as well as the Davis Tax Commission, which had also made recommendations on higher education funding.
By announcing now and not waiting for the February budget, Zuma was also saying that he believed he had the right to rule by decree and to decide how best taxpayers’ money could be spent.
Should he lose this conference, which looks increasingly likely, this decision will be a hard one to reverse.
ANC Youth League president Collen Maine, asked by journalists whether free education was a sustainable policy, blustered: “If anyone tries to reverse decisions, young people will rise against them.”
That is perhaps why the Presidency was dusting off the state-of-emergency regulations last month. They understand how easily chaos can be manufactured.