EDITORIAL: From free fees to free fall
SA could be taken even further down the junk scale if this is seen as the beginning of a series of raids on the public purse
Is President Jacob Zuma’s determination to force through free higher education a first step towards a government that prints money to pay for spending it cannot afford?
That’s one of the many disturbing questions raised by reports that the president plans to introduce fee-free education in 2018, at an additional cost of R40bn for the year, against the advice of the Treasury, as well as of the Heher commission on higher education funding, which Zuma himself appointed.
Inexplicably, too, the president’s plans come as universities experience their quietest end-of-year period in three years, with students at almost all of SA’s campuses writing exams as scheduled and few signs of the #FeesMustFall protests seen in previous Octobers.
Campuses have generally been quiet, even though some universities have announced fee increases of 8% for 2018 and despite the leaked recommendations of the Heher commission, which has proposed a more sensible and sustainable funding regime than simply dishing out free fees for all.
A DOWNGRADE TO JUNK STATUS COULD BE A DONE DEAL IF ZUMA PRESSES AHEAD WITH FREE FEES.
That suggests that far from being a strategic response to the student uprisings or even an effort to capture the votes of the emerging black middle class, Zuma’s populist gesture is just that — a gesture. It is a gesture aimed apparently at demonstrating delivery on "radical economic transformation".
But SA will pay dearly for it. At a time when the fiscal deficit has blown out and departmental budgets are under pressure, cutting R40bn from other budgets to accommodate the free fee bill could have savage effects on public service delivery and on an already fragile economy.
But the real cost will go beyond that. The way the process is unfolding has profound implications for the place of the Treasury and the budget process within government. It threatens to undermine the whole edifice of prudent fiscal policy that the new democratic ANC government has spent years building after inheriting a bankrupt state from its apartheid predecessor.
One of the key factors that won SA an investment grade rating from the ratings agencies, and enabled it to bring down its borrowing costs quite dramatically in the democratic era, was its well-managed fiscal policy and its commitment to fiscal prudence. That kept SA at investment grade long after its growth and budgetary fortunes began to decline four or five years ago.
The Treasury’s own reputation was a big part of that, although it was never an independent department that made budget allocations on its own. Its decisions were the product of consultations across the government and were supported by the Cabinet. That was always a controversial process. But until recently, the finance minister and the Treasury still had the authority to convince their colleagues to hold back on proposals deemed unaffordable.
Zuma’s intervention represents a fundamental break in that relationship. Ratings agencies and investors will not miss the significance, especially after the medium-term budget debacle. Ironically, that budget already provided for higher education spending to be the second fastest-growing item, after the cost of the public debt, and it set aside an extra R40bn for the National Student Financial Aid Scheme.
As it is, the huge revenue shortfall and Finance Minister Malusi Gigaba’s failure to set out any plan to get the government back on the fiscal consolidation path are likely to prompt downgrades by the ratings agencies. An immediate downgrade to junk status could be a done deal if Zuma presses ahead with free fees.
SA could be taken even further down the junk scale if this is seen as the beginning of a series of raids on the public purse to pay for big-ticket items it cannot afford, nuclear energy among them. That’s especially so if the government starts cutting budgets that matter for poor people’s quality of life in an attempt to find the money, or simply lets the deficits and the debt blow out of control. It’s a slippery slide. The ANC itself needs to intervene.