The world is changing fast and to keep up you need local knowledge with global context.
Matthew Lester: SETAs, UIF should be raided, then #FeesMustFall
Rhodes University tax professor Matthew Lester has focused a lot of his attention on the root cause of the #FeesMustFall campaign which sparked national protests by university students. He unpacks the numbers and explains how free tertiary education can be addressed through a little creative thinking on the over-funded UIF and greater equity on SETAs. Lester was talking to Biznews.com’s Alec Hogg.
Talking to us from Rhodes University is Tax Professor and Biznews columnist, Matthew Lester. Matthew, you’ve been getting people excited with all the stuff you’re writing on #FeesMustFall.
Yes. It’s a massive problem Alec, and it’s far past time that we dealt with this. It’s just pathetic. There are solutions. Even in Parliament, we’re not getting down to how we’re going to solve this problem. It’s becoming urgent.
Yes. These politicians are certainly making a bit of a meal of it. Malema’s done his thing. He has quite a lot of support but I suppose that when you look at it from an objective/rational perspective, there are many students who really, are struggling.
Yes. Where do you get R40k/R50k per year, excluding your living costs, to go to university? It’s preposterous. Less than 100,000 South Africans earn more than R1m/year, which would be the required earnings to get somebody into university without hurting badly. Yet, you’re trying to get one-million people into university. It’s pathetic.
I’m sorry. R100k per month, you’re saying – not a year.
Well, there are still 100,000 South African taxpayers who earn more than R1m/year.
Read also: Makgoba: Student protests leadership failure – a ’picnic’ of what’s to come
Okay. I have it. That is a very small group and you happen to not be a beneficiary of the lottery of the womb, and your parents aren’t rich, how do you get to university?
Well, that’s when everyone starts borrowing like mad. This is another problem because it either leaves the student totally broke at university, or totally depressed. Another big problem is that parents are actually, eating up their retirement savings to get their kids to university so they pain will come even later.
Matthew, you deal with university students all the time. How many of them are there ‘just for the jol/party’ as I can remember many were at the time when I attended my one year at university, and how many of them would you say today are really, focused on trying to get that degree?
Look, I think that the element of the ‘jol’ has dropped an enormous amount. There’s just not the money to go out and get trashed every night, and behave as we did 30 years ago. I think you’ll find today’s students a lot more serious than what they were. It’s not just a question of a ‘jol’ anymore.
These guys are focused but when they do get angry, they act like students always have and that’s what happened in the past week or so.
Yes. Well, students are an incredibly powerful body. Let’s not forget that 1976 was started by students. They’re a vocal lot and when they get everything underneath them and they get going, they don’t need Red Bull to keep the performance up. They will.
Matthew, you would also have been watching like the rest of South Africa, the E-News coverage of what happened at Parliament, the Union Buildings, and then at Wits University. How many of the guys are involved in this? How many of the students who are there, are genuinely desirous of doing something better, and how many do you think are just political troublemakers?
There is an element coming in, which you can call political troublemakers but in general, we have students that are in trouble and their fellow students are sympathetic to their cause. You haven’t seen every student in South Africa out there, but there are students there that are maybe paid for by their parents but they’re very sympathetic to their fellow students who are incurring these problems. Yes, there are some troublemakers amongst the whole thing but that doesn’t detract from the issue around prices, Alec.
Read also: More money for post-matrics, says Higher Education Minister
The spark came from fees of up to ten percent (or to be increased by up to ten percent). That’s just dumb. That’s just idiotic to try and levy that in this day and age. What motivated that? You’re on the Davis Tax Committee so you can see the inside.
Yes. I look at where the taxes come from and not how they’re spent. Basically, we’ve enrolled more and more students in universities and Government is correct on that but it’s put more and more pressure on universities to make up a budget that make sense and if your subsidy’s are not growing at the same rate as your enrollment is growing, you’re going to land up with a shortage and the only option put to the universities is ‘well, increase your fees’. That’s how we land up with proposals retrieving the inflation rate. That’s not new. The fees have been rising too quickly for years and now they’ve gotten to the breaking point.
The subsidies clearly, haven’t been keeping pace.
Yes. Look, we’re spending R63bn per year on Higher Education already. That’s a lot of money but if you look at the joint cost of having a student in university, I reckon it’s about R110,000 per year per student. Let’s say that R60,000 of that is actually paid for by the Government, that hasn’t been growing fast enough so the pressure on the students has to pick up the rest and unfortunately, there hasn’t been any imagination applied to ‘how can we make a better deal’.
Well hopefully, we’re going to find some of that imagination from you. Again, getting back to the ancient past, there weren’t many bursaries around in my day. We all had to go to the bank and ask for student loans, and that took a while to pay off. Are they still available? Are the banks still coming to the party there?
I think the banks are far less generous than they used to be. When I got my student loan when I was a student they said, ‘who are you and can your dad find security’ and that was it. You got your student loan. Then you went for a bursary and the bursary schemes were far more generous. If I look at my matric results, I would never have gotten a student loan or a bursary today on what my matric results were.
Yet, you’re a professor. What does it tell us about the education system Matthew, or about your application at school?
Read also: Matthew Lester: Student loan ‘financial suicide’. Where’s Govt’s 20c:R1 tax spend going?
It’s an important part. Everybody should be given a chance. You don’t know. Sometimes they only come to the fore at university or even later. That’s why we have to be very careful about excluding people from university.
Definitely. All right. Now let’s have a look at some potential solutions (and you’ve been proposing some of them). I really like the line that you’re taking on the SETAs. Just explain what a SETA is, first.
Let’s have a look at the SETA thing because there’s going to be a lot of talk around SETA in months to come. SETA levies are put on payroll at a rate of one percent and that collects R15bn per year. That is then passed on. About R3bn of it goes into the National Skills Fund and does help a lot of poor students get to university. Then R1.5bn is kept for admin and the next R10bn is spent on the SETA programs.
R1.5bn goes for admin. Hang on a minute.
Ten percent of the correction.
That’s alright, hey. I guess lots of people need to be fed.
The rest is hived off into the SETA programs – either the mandatory spend or the discretionary spend. A business has to jump through all hoops and barriers to go and reclaim it. Many businesses say that that’s not working. Already, the proposal has come up in Government to say ‘push the SETA levy up from one percent to two percent, collect another R15bn’ and there’s your solution for the fees crisis. Well, it’s not enough. The total for fees would be about R50bn, so that wouldn’t be enough. They need to have a big look at the SETA system and see whether it’s working. Another aspect of SETA, which absolutely appalls me, is that we exempt municipalities, Governments, and PBOs from SETA levies but we don’t exempt universities. The universities that are tax-free institutions are paying (by my estimate) R750m per year in SETA levies, to Government.
That’s supposed to be the training sector. We could come around very quickly on this. We could just grant an exemption to the universities from SETA levy, which will give them an extra R750m on the condition that the universities use those in financial aid packages. We could have that in for enrollment next near. We could move that quickly on it.
Read also: Matthew Lester: #FeesMustFall – Free education, tax deduction for the rich
You’ve done the calculations. How many packages could there be?
Twenty-five thousand students.
How many students are there at universities today, in South Africa?
Well, it stood between public universities and the private colleges, etcetera. In the universities themselves, there are 600,000 to 700,000 and then about another 300,000 in private colleges, etcetera.
Twenty-five thousand with SETA exemption is not insignificant, but it’s not going to help a whole lot.
Yes. It’s a massive amount of money and it’s a very effective way of taxing educational institutions, albeit universities or private schools, we’ll tax them on payroll instead of income tax. That’s bonkers. It’s high time that it was addressed.
You’re in the Davis Tax Committee. Why haven’t you?
I’m going to be making a lot of noise this year. I want to shout a bit.
Okay, well on this #FeesMustFall…I don’t know if I want to say you’re in good or bad company, but there are lots of people doing shouting.
Yes. Then there are other things. Let’s go into the Department of Labour. Now, Mrs. Oliphant is sitting right behind Mr Nzimande in Parliament. The UIS Fund is sitting on a R90bn surplus and it’s increasing by R10bn per year. There’s a huge oversupply of money in the Department of Labour. If they were to invest that in the students of the future, they’d earn more money, they’d pay higher UIF, and make even more money but we can’t go near that one.
I think we should.
Why can’t we go near that one?
If I were Zuma today, I’d get hold of the Department of Labour and say ‘come on, let’s make a plan’. We have to start thinking out of the box. We can’t say the Department of Labour is not affected by this.
Matthew, last year in the Budget, Nhlanhla Nene (our Finance Minister) was going to give R15bn of that surplus back by reducing fees of UIF. Then that was changed/reversed so perhaps that R90bn is actually needed elsewhere and won’t be allowed to be given.
Well, it’s still going.
Yes, but into a Slush Fund of some sort. Maybe it’s been earmarked for that.
I don’t know. There’s a hell of a lot of money there. They have financial reports running into hundreds of pages on their website and the money is sitting there, all properly accounted for – brilliant – but it’s not working and there’s a pricelist.
The nation has R90bn in the UIF, which is sitting there doing nothing and growing at R10bn per year. Then there’s also universities that are being taxed to pay the SETA’s payroll tax and you say that’s about R750m. Those two seem like they could be applied pretty easily and pretty quickly, to address an issue that’s been with us for a long time.
I’m saying there’s a solution. We mustn’t sit back now and say ‘well, zero percent is going to a student until they jump up and down next year’. We should be at the forefront on this thing and by February/March next year, say ‘we have a plan’. It’s a starting point. Wouldn’t that be a breath of fresh air in this whole thing?
It sure would but I ask you then, how does it stack up in the priorities of this ANC Government, given that there’s also National Health Insurance, which needs to be funded at some point in time. Is it realistic to think that you could actually dip into that UIF Fund?
Well, you have to look at equity amongst the poor, even. How can you say ‘I’m going to spend R110,000 per year on the student’ when the Child Grant is R4,000 per year and the Old Age Grant is R16,000 per year? That’s odd, isn’t it?
We have to find some balance in that. That also has to come right. You are quite right in that NHI is still a long way off and it’s something we desperately need. Now we can’t have everything and what we have to do is say ‘what is sustainable’ and I think we need to do a lot of education with students as well. Say, “Look, this is how it all works. This is where the funding comes from, and this is the cost of it all – what you’re actually proposing”. Nothing’s free. Last week, we argued about percentages.
Read also: Matthew Lester: Taxpayer revolution. R90bn UIF surplus to the rescue.
Economic literacy is very expensive if you don’t have it. We seem to be laboring under this in South Africa. Are these students aware, though? Are they starting to understand that they have fit somewhere in the group of priorities, or is it a question of the squeaky wheel (in this case, a very aggressive squeaky wheel) getting the most attention?
Well, I think it’s something we need to go back on. We need to say ‘congratulations. Great show last week. You’ve made the Government take you seriously’. However, now we also have to look at it and say ‘let’s look at it in the context of South Africa. This is what the national numbers look like’ and we do need to do more in explaining what the true situation is with the finances.
It would also help a little if the banks decided to come to the party more aggressively with student loans. Surely, there can be some kind of underpin from Government.
You have this national surplus of cash sitting in the banks – R500bn sitting in the banks – and it’s not working. Well, if you give a student loan, it might give a lousy return at first but I can tell you that my bank, by giving me a student loan, was the best investment they ever made.
Are you still with them?
That is a very good investment. You worked that one back. Why did banks stop? Were students just not as loyal as they anticipated?
I think that what you have to look at with student loans is that it’s absolutely essential that they get repaid. There has been a problem with that. Understandably, in some cases the loans just got too big but as we see with micro-lending as well, it’s an easy decision to say ‘I don’t want to do this type of business. It doesn’t pay. It doesn’t give me my required returns, so I’m going to put the money on the money desk or let the dealers deal with it, or something else’. I think the banks have a lot of work to do.
Yes. I guess it all comes down to confidence doesn’t it, Matthew. Pulling everything together here, there’ve been congratulations to the students. They’ve been quiet for far too long. They’ve picked up this thing of university fees, but is that where it ends because there are lots of things in this economy that people aren’t happy about.
This is the end of the beginning. Let’s put it that way. Round one. The university problems go far beyond fees only. The issue of transformation in universities…we haven’t done enough. They’re right. This is just one aspect of transformation within universities, so there’s a long way to go.
What would be the next target area?
It’s everything from the constitution of the staff of the university, the syllabus that is taught… You name it. The list is long.
Just one thing that has been worrying me a little bit. There’s a Minister of Higher Education called Blade Nzimande who’s been SA Communist Party Leader for 17 years. Does he affect the curriculum? For instance, if I were an Economics 1 student today, would I understand the disasters of communism, Soviet Union, Cuba, and Venezuela, etcetera or would that be glossed over, and capitalism actually be attacked?
No, I don’t think the actual interference with the syllabus is as much as the people think it is at tertiary level. Let’s face it. Accounting 1 Law has been the same. I don’t think Nzimande has interfered (certainly, at undergraduate level) in what is going on. There is a huge amount of bureaucracy that has been created by the Department of Higher Education in allowing us to adapt our syllabi and degree offerings so that they can quickly meet what the market wants. That’s become a hell of a problem. If I want to start a new course today, I’m probably looking at three years to get all the approvals through the Department of Higher Education, so there’s a hell of a lot of red tape there that’s going on. From the point of view of the Department of Higher Education, the big thing is now to come up with a financial package that gets some people into universities first and foremost.
That’s the number one priority. Then we can look at what we’re going to teach them.
Matthew Lester is Professor of Tax at Grahamstown’s Rhodes University and an economist on Biznews.com, the most popular columnist of recent times on the whole #FeesMustFallcampaign. Matthew, it’s really good talking to you from that part of the world.
It’s an absolute pleasure.
Good luck there in Grahamstown. Keep up the pressure, my friend.
Okay. We’ll keep talking. Thank you.
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.