President Jacob Zuma blindsided the Treasury, his Cabinet colleagues and the ANC’s own committee on education when he announced free higher education for poor and working-class families on Saturday morning.
In the past week, Zuma had been explicitly advised by Treasury officials that the plan was not affordable in the context of the government’s constrained finances, which will already include large spending cuts and tax increases in February's budget. The Treasury had also tried hard to persuade him to delay any announcement until the budget.
The Treasury and the Department of Higher Education and Training have been in intense negotiations over the issue. At the end of last week, officials believed that they had persuaded Zuma to delay any announcement. But he took them by surprise by posting a statement on the Presidency website early on Saturday. This was followed by a press release to all media.
The Treasury is enormously anxious over the plan, which initial estimates have found would cost at least an additional R15bn in 2018 and larger amounts in the next two years of the three-year medium-term budget framework. It was over attempts by Zuma to interfere in the budget process that head of the budget office Michael Sachs resigned.
The Treasury issued a bland statement on Saturday afternoon hinting that it was not aware of the plan nor did it have a funding plan at hand.
“National Treasury notes the announcement by the Presidency this morning and is in the process of reviewing the details of the higher education proposals, as well as possible financing options. The proposal will also be considered by the Ministers' Committee on the Budget and the Presidential Fiscal Committee. Any amendments to existing spending and tax proposals will be announced at the time of the 2018 budget,” it said.
The ANC sub-committee on education, headed by Naledi Pandor, held a media briefing last week in which it said that a new model for higher education funding was being considered but it clearly had no knowledge of Zuma’s pending announcement.
Cabinet structures were also left out of the consultation process. In particular, Zuma – who set up a new committee on the budget recently through which all funding decisions would go, the President’s Fiscal Committee – was also left out of decision-making on how the new allocation would be funded.
However, head of the ANC economic policy committee Enoch Godongwana said Zuma’s announcement was in keeping with ANC policy.
“The announcement is giving effect to a decision of the ANC that we must cover a broad spectrum of incomes up until R600,000. However, the devil is in the detail and I'm not appraised of what the trade-offs will be,” said Godongwana.
Godongwana said as far as he knew the proposal would cost R12bn in 2018. But initial calculations done by the Treasury have put the figure higher.
The 2018 budget is already under extreme pressure with a R40bn funding gap in the budget, which government has promised to close with a combination of R25bn of expenditure cuts and tax increases of R15bn.
An additional spending commitment of R15bn will require additional tax hikes and an increase in the VAT rate, which the Treasury has always avoided because of its disproportionate effect on the poor, is almost certainly now on the cards.
Zuma raising the threshold for free education to family earnings of R350,000 will at least triple funding for the National Student Financial Aid Scheme (NSFAS) and cost the country in the region of R15bn in 2018. 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.
University fees for families with incomes of up to R600,000 will be exempt from fees increase in 2018. Zuma also said that the government subsidy to universities would be increased from from 0.68% to 1% of gross domestic product over the next five years as recommended by the Heher Commission.
Announcing the decision, Zuma in his political report to the ANC conference on Saturday afternoon said he had made the announcement that morning because two previous national conferences had a standing resolution that the ANC policy was to introduce free education for the poor up until undergraduate level.
While his comments evoked strong applause from the floor, Zuma appeared disappointed by the response, pausing and repeating himself again and asking the audience for a response.
The announcement will have a detrimental impact on SA’s bid to escape a Moody’s downgrade at the end of February. Although Finance Minister Malusi Gigaba has tried hard to persuade the agencies that he is committed to fiscal consolidation, the addition of further spending commitment will undermine his credibility.
Universities SA, the association of universities, said that the announcement was “concerning as there was no consultation with key role players before the Presidency released the statement”.
The Congress of South African Trade Unions issued a statement supporting the free higher education but at the same time expressed the wish that this should be funded by business.
The federation hinted that a VAT increase in February would be unacceptable, saying that it demanded “the introduction of redistributive tax interventions, which will include an introduction of progressive tax system and force the super-rich to contribute towards funding free education”.