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, youâve been getting people excited with all the stuff youâre writing on #FeesMustFall.
Yes. Itâs a massive problem Alec, and itâs far past time that we dealt with this. Itâs just pathetic. There are solutions. Even in Parliament, weâre not getting down to how weâre going to solve this problem. Itâs becoming urgent.
Yes. These politicians are certainly making a bit of a meal of it. Malemaâs 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? Itâs 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, youâre trying to get one-million people into university. Itâs pathetic.
Iâm sorry. R100k per month, youâre saying â not a year.
Well, there are still 100,000 South African taxpayers who earn more than R1m/year.
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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 arenât rich, how do you get to university?
Well, thatâs 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 âjust for the jol/partyâ 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 âjolâ has dropped an enormous amount. Thereâs just not the money to go out and get trashed every night, and behave as we did 30 years ago. I think youâll find todayâs students a lot more serious than what they were. Itâs not just a question of a âjolâ anymore.
These guys are focused but when they do get angry, they act like students always have and thatâs what happened in the past week or so.
Yes. Well, students are an incredibly powerful body. Letâs not forget that 1976 was started by students. Theyâre a vocal lot and when they get everything underneath them and they get going, they donât 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 havenât seen every student in South Africa out there, but there are students there that are maybe paid for by their parents but theyâre very sympathetic to their fellow students who are incurring these problems. Yes, there are some troublemakers amongst the whole thing but that doesnât detract from the issue around prices, Alec.
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The spark came from fees of up to ten percent (or to be increased by up to ten percent). Thatâs just dumb. Thatâs just idiotic to try and levy that in this day and age. What motivated that? Youâre on the Davis Tax Committee so you can see the inside.
Yes. I look at where the taxes come from and not how theyâre spent. Basically, weâve enrolled more and more students in universities and Government is correct on that but itâs put more and more pressure on universities to make up a budget that make sense and if your subsidyâs are not growing at the same rate as your enrollment is growing, youâre going to land up with a shortage and the only option put to the universities is âwell, increase your feesâ. Thatâs how we land up with proposals retrieving the inflation rate. Thatâs not new. The fees have been rising too quickly for years and now theyâve gotten to the breaking point.
The subsidies clearly, havenât been keeping pace.
Yes. Look, weâre spending R63bn per year on Higher Education already. Thatâs a lot of money but if you look at the joint cost of having a student in university, I reckon itâs about R110,000 per year per student. Letâs say that R60,000 of that is actually paid for by the Government, that hasnât been growing fast enough so the pressure on the students has to pick up the rest and unfortunately, there hasnât been any imagination applied to âhow can we make a better dealâ.
Well hopefully, weâre going to find some of that imagination from you. Again, getting back to the ancient past, there werenât 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, âwho are you and can your dad find securityâ 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, youâre a professor. What does it tell us about the education system Matthew, or about your application at school?
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Itâs an important part. Everybody should be given a chance. You donât know. Sometimes they only come to the fore at university or even later. Thatâs why we have to be very careful about excluding people from university.
Definitely. All right. Now letâs have a look at some potential solutions (and youâve been proposing some of them). I really like the line that youâre taking on the SETAs. Just explain what a SETA is, first.
Letâs have a look at the SETA thing because thereâs 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.
Thatâs alright, hey. I guess lots of people need to be fed.
The rest is hived off into the SETA programs â 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 thatâs not working. Already, the proposal has come up in Government to say âpush the SETA levy up from one percent to two percent, collect another R15bnâ and thereâs your solution for the fees crisis. Well, itâs not enough. The total for fees would be about R50bn, so that wouldnât be enough. They need to have a big look at the SETA system and see whether itâs working. Another aspect of SETA, which absolutely appalls me, is that we exempt municipalities, Governments, and PBOs from SETA levies but we donât exempt universities. The universities that are tax-free institutions are paying (by my estimate) R750m per year in SETA levies, to Government.
Thatâs 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.
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Youâve 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 itâs not going to help a whole lot.
Yes. Itâs a massive amount of money and itâs a very effective way of taxing educational institutions, albeit universities or private schools, weâll tax them on payroll instead of income tax. Thatâs bonkers. Itâs high time that it was addressed.
Youâre in the Davis Tax Committee. Why havenât you?
Iâm going to be making a lot of noise this year. I want to shout a bit.
Okay, well on this #FeesMustFallâŚI donât know if I want to say youâre in good or bad company, but there are lots of people doing shouting.
Yes. Then there are other things. Letâs 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 itâs increasing by R10bn per year. Thereâs a huge oversupply of money in the Department of Labour. If they were to invest that in the students of the future, theyâd earn more money, theyâd pay higher UIF, and make even more money but we canât go near that one.
Why?
I think we should.
Why canât we go near that one?
If I were Zuma today, Iâd get hold of the Department of Labour and say âcome on, letâs make a planâ. We have to start thinking out of the box. We canât 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 wonât be allowed to be given.
Well, itâs still going.
Yes, but into a Slush Fund of some sort. Maybe itâs been earmarked for that.
I donât know. Thereâs 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 â brilliant â but itâs not working and thereâs a pricelist.
The nation has R90bn in the UIF, which is sitting there doing nothing and growing at R10bn per year. Then thereâs also universities that are being taxed to pay the SETAâs payroll tax and you say thatâs about R750m. Those two seem like they could be applied pretty easily and pretty quickly, to address an issue thatâs been with us for a long time.
Iâm saying thereâs a solution. We mustnât sit back now and say âwell, zero percent is going to a student until they jump up and down next yearâ. We should be at the forefront on this thing and by February/March next year, say âwe have a planâ. Itâs a starting point. Wouldnât 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 thereâs 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 âIâm going to spend R110,000 per year on the studentâ when the Child Grant is R4,000 per year and the Old Age Grant is R16,000 per year? Thatâs odd, isnât it?
Yes.
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 itâs something we desperately need. Now we canât have everything and what we have to do is say âwhat is sustainableâ and I think we need to do a lot of education with students as well. Say, âLook, this is how it all works. This is where the funding comes from, and this is the cost of it all â what youâre actually proposingâ. Nothingâs free. Last week, we argued about percentages.
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Economic literacy is very expensive if you donât 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 itâs something we need to go back on. We need to say âcongratulations. Great show last week. Youâve made the Government take you seriouslyâ. However, now we also have to look at it and say âletâs look at it in the context of South Africa. This is what the national numbers look likeâ 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 â R500bn sitting in the banks â and itâs 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?
Yes.
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 itâs 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, itâs an easy decision to say âI donât want to do this type of business. It doesnât pay. It doesnât give me my required returns, so Iâm going to put the money on the money desk or let the dealers deal with it, or something elseâ. I think the banks have a lot of work to do.
Yes. I guess it all comes down to confidence doesnât it, Matthew. Pulling everything together here, thereâve been congratulations to the students. Theyâve been quiet for far too long. Theyâve picked up this thing of university fees, but is that where it ends because there are lots of things in this economy that people arenât happy about.
This is the end of the beginning. Letâs put it that way. Round one. The university problems go far beyond fees only. The issue of transformation in universitiesâŚwe havenât done enough. Theyâre right. This is just one aspect of transformation within universities, so thereâs a long way to go.
What would be the next target area?
Itâs 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. Thereâs a Minister of Higher Education called Blade Nzimande whoâs 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 donât think the actual interference with the syllabus is as much as the people think it is at tertiary level. Letâs face it. Accounting 1 Law has been the same. I donât 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. Thatâs become a hell of a problem. If I want to start a new course today, Iâm probably looking at three years to get all the approvals through the Department of Higher Education, so thereâs a hell of a lot of red tape there thatâs 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.
Thatâs the number one priority. Then we can look at what weâre going to teach them.
Matthew Lester is Professor of Tax at Grahamstownâs Rhodes University and an economist on Biznews.com, the most popular columnist of recent times on the whole #FeesMustFallcampaign. Matthew, itâs really good talking to you from that part of the world.
Itâs an absolute pleasure.
Good luck there in Grahamstown. Keep up the pressure, my friend.
Okay. Weâll keep talking. Thank you.