Download Commission of Inquiry into Higher Education

University funding
and the budget
Commission of Inquiry into Higher Education and Training
Pravin Gordhan| Minister of Finance
3 March 2017
Points of departure
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Higher education as part of the education value chain
Inclusive growth – Revenue – Fiscal space
Expenditure = Revenue + Borrowing
Lower growth = lower deficit = lower borrowing + debt management
The socio-economic reality of SA – competing priorities
Political priorities = MTSF = budget priorities
Since Great Depression (2008/9) – cutting expenditure + raising taxes
But safeguarding social spend – No austerity
But, demands on budget greater than total spend
? New round of cuts might be necessary?
Higher education and training roadmap through dialogue + diversity
of solutions
South African realities
3
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Income growth has been uneven - the bottom 20 per cent have benefited from social
grants and better access to services, the top 20 per cent have benefited from the rising
demand for skills and pay increases. Those in the middle have been left behind.
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Wealth remains highly concentrated – 95 per cent of wealth is in the hands of 10 per
cent of the population.
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35 per cent of the labour force are unemployed or have given up hope of finding work.
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Despite our progress in education, over half of all children in Grade 5 cannot yet read
adequately in any language.
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More than half of all school-leavers each year enter the labour market without a senior
certificate pass. 75 per cent of these will still be unemployed five years later.
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Our towns and cities remain divided and poverty is concentrated in townships and
rural areas.
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Our growth has been too slow – just 1 per cent a year in real per capita terms over the
past 25 years, well below that of countries such as Brazil, Turkey, Indonesia, India or
China.
Transformation for inclusive growth
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To realise the vision of the Constitution, South Africa needs transformation that opens a
path to inclusive economic growth and development.
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Growth without transformation would only reinforce the inequitable patterns of wealth
inherited from the past. Transformation without economic growth would be narrow and
unsustainable.
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Broad-based transformation should promote growth, mobilise investment, create jobs
and empower citizens. It must create new resources to support social change, including
assets and livelihoods for the majority, and strengthen South Africa’s constitutional
foundations.
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The budget plays a central role in transformation by promoting redistribution and
directing scarce resources towards catalytic investments in human and physical capital.
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The 2017 Budget proposes several difficult trade-offs to safeguard citizens’ quality of
life, improve the efficiency of spending and ensure that the public finances are
sustainable.
Education is key to transformation
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The quality of our schools and further education institutions is at the heart of our
commitment to our children’s future.
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A clear plan needs to consider the impact of different education interventions to
maximise social and economic transformation. Decisions and trade-offs are required to
ensure balanced, sustainable development that meets the vast needs of the population
using available resources.
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Improvements have to begin in the foundation phase of the education “value-chain”.
We will continue to increase resources for early childhood development, improve our
basic education outcomes and step up our support to TVET colleges and universities.
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Government recognises the needs articulated by students in universities and TVET
colleges. As the economy grows, we will be able to do more to finance an expansion in
tertiary education opportunities and improvements in student funding.
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Civil society initiatives involving business, churches and other organisations have
created space for a diversity of options to be considered. The President has invited
stakeholders to participate in processes that are underway so that all views are heard.
Together we can find a roadmap for higher education
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Given the magnitude of student funding requirements, it is imperative that we develop a clear
roadmap towards a better higher education and training system.
It must clearly indicate how society will achieve access, opportunity, financing and support for
students in the university and further education sectors.
Several broad principles will assist in finding the way forward:
– Government is determined to address the challenges identified in post-school education and
training in a phased manner. Resources will be taken into account in determining the pace
with which these can be addressed.
– Government stands ready to engage with education stakeholders and adapt financing
arrangements as may be required in future years, within the scope of available resources.
– Universities, students and education stakeholders share responsibility for improving access
and quality and the diversity of higher education and training provided, within a framework of
consultation rather than confrontation.
– A growing contribution is needed from employers and industry through funding of bursaries,
internship opportunities and research programmes, recognising that this is the foundation of
future productivity and technology advances
Together, we will find a way forward that meets student funding needs fairly and sustainably, so
that rising numbers of graduates can contribute positively to inclusive growth and transformation
of the economy.
Stronger and more inclusive growth is required
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The projected rate of economic growth is insufficient to reduce unemployment,
inequality and poverty.
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The budget is highly redistributive, but stronger economic growth is needed to sustain
the fiscal position.
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Moving to a path of stronger and more inclusive growth requires:
– Transforming patterns of asset ownership and production, promoting competition
and de-concentrating product markets.
– Mobilising private and public capital investment in tandem to help modernise and
diversify the economy.
– Providing workers and the poor with access to markets, and social and economic
infrastructure.
– Strengthening transparent government and the rule of law.
– Investing in research and development, and innovation.
– Improving the quality of education and training to meet the needs of a modern
economy.
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National Treasury Presentations to the Commission
1st briefing: 12 August 2016
2nd briefing: 7 October 2016
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Fiscal policy and macroeconomic context
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Choices and constraints in Budget 2016
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Taxation: principles and medium term
policy considerations
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Budget process
Constitutional and policy background to
resource allocation in the national budget
– The bill of rights
– Government policy documents
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Issues in budgeting for higher education
– Budget decisions making in context:
needs vs available resources
– Education budgets
– Budgets for post-school education
and training
– University sources of income
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Further considerations in the allocation of
resources to universities
The basic budget equation
Expenditure = Revenue + Borrowing
EXPENDITURE
REVENUE
> Inputs, outputs and
impacts
> Economic growth and
revenue collection
> Growth and
Sustainability
> Effective allocations
> Tax rates and economic
growth
> Growth and interest
rates
> Tax policy and tax
administration
> Credibility
> Efficiency
> Taxpayer compliance, tax
morality and the Laffer
curve
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BORROWING
> Ability to pay vs.
willingness to pay
Tax revenue shortfall in 2016/17
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Gross tax revenue for 2016/17 is R30.4 billion lower than the original estimate at the
time of 2016 Budget.
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There is uncertainty regarding the path of revenue collection. Risks include weakerthan-expected economic growth, and concerns about tax morality, compliance and
administration.
Revenue performance against budget targets (2016/17)
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5
0.7
-1.5
-1.0
Other
-5
-2.3
Fuel levy
0
Specific
excise
R billions
6.8
-6.5
-10
-11.3
-15
-15.2
CIT
DWT
Customs
10
VAT
PIT
-20
Tax proposals
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The tax proposals this year will raise an additional R28 billion.
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A new top personal income tax rate of 45 per cent for those with taxable incomes above R1.5
million.
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An increase in the dividend withholding tax rate from 15 per cent to 20 per cent.
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Limited bracket creep relief, increasing the tax free threshold from R75 000 to R75 750.
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An increase of 30c/litre in the
general fuel levy and 9c/litre in
the road accident fund levy.
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Increases in the excise duties for
alcohol and tobacco, of between
6 per cent and 10 per cent.
An increase in the transfer duty
threshold from R750 000 to R900
00 will provide relief to the
affordable housing market.
Revenue impact of tax proposals
R million
Taxes on individuals and companies
Personal income tax
Revenue from not fully adjusting for inflation
12 148
Revenue if no adjustment is made
14 628
Bracket creep adjustment
-2 480
New top marginal income tax bracket
Dividend withholding tax
Taxes on property
Indirect taxes
Increase in general fuel levy
Increase in excise duties on tobacco products
Increase in excise duties on alcoholic beverages
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16 516
4 369
6 822
-448
5 133
3 197
656
1 280
Consolidated fiscal framework
 Government is committed to a measured path of fiscal consolidation that contains the
budget deficit and stabilises public debt.
 The combination of a lower expenditure ceiling and higher taxes will narrow the
consolidated budget deficit from an estimated 3.4 per cent of GDP in 2016/17 to 2.6 per
cent by 2019/20.
Consolidated fiscal framework
2013/14
2014/15
2015/16
Outcome
Revised
estimate
R billion/percentage of GDP
12
2016/17
2017/18
2018/19
2019/20
Medium-term estimates
Revenue
1 008.1
27.8%
1 098.9
28.4%
1 222.0
29.9%
1 297.3
29.4%
1 414.1
29.8%
1 535.2
29.9%
1 668.5
30.1%
Expenditure
1 143.4
31.5%
1 233.5
31.9%
1 364.2
33.4%
1 445.2
32.8%
1 563.1
33.0%
1 677.1
32.7%
1 814.3
32.7%
Non-interest expenditure
1 033.8
28.5%
1 112.1
28.8%
1 227.9
30.0%
1 291.8
29.3%
1 393.8
29.4%
1 489.5
29.0%
1 608.0
29.0%
Interest payments
109.6
3.0%
121.4
3.1%
136.3
3.3%
153.4
3.5%
169.3
3.6%
187.6
3.7%
206.4
3.7%
Budget balance
-135.4
-3.7%
-134.6
-3.5%
-142.2
-3.5%
-147.9
-3.4%
-149.0
-3.1%
-141.9
-2.8%
-145.8
-2.6%
Primary balance
-25.8
-0.7%
-13.2
-0.3%
-5.9
-0.1%
5.5
0.1%
20.3
0.4%
45.7
0.9%
60.6
1.1%
Main budget primary deficit continues to narrow
 Despite revenue underperformance, the main budget primary deficit will halve from
1 per cent of GDP in 2015/16 to 0.5 per cent of GDP by the end of 2016/17.
 Main budget non-interest spending has stabilised at around 26 per cent of GDP
 Tax increases and buoyancy over the last five years have supported a substantial
improvement in revenue
Main budget revenue and non-interest spending
26
Per cent of GDP
25
24
23
22
21
Revenue
20
Non-interest spending
2018/19
2016/17
2014/15
2012/13
2010/11
2008/09
2006/07
2004/05
2002/03
2000/01
1998/99
13
1996/97
19
Net debt stabilising below 50 per cent of GDP
Gross and net debt outlook
55
Per cent of GDP
50
45
40
35
30
Gross loan debt
25
Net loan debt
14
2024/25
2022/23
2020/21
2018/19
2016/17
2014/15
2012/13
2010/11
2008/09
2006/07
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The trend rate of growth has fallen
5
Per cent
4
5.3
Average growth (2000 - 2008)
4.3%
5.6 5.5
4.6
4.2
3.7
3.6
3
3.1
2.9
2.7
Average growth (2010- 2019)
2.0%
3.6
2
2.2 2.2
2.0 2.2
1.5
1
1.3
1.3
0.5
0
-1
-1.5
-2
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Real GDP growth
Source data: Reserve Bank and National Treasury
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Consolidated spending in 2017/18
The national budget
is strongly aligned
with constitutional
imperatives.
About two-thirds of the
2017 Budget is
allocated to functions
dedicated to realising
constitutionally
mandated social rights
– including education,
healthcare, social
security and housing.
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Agriculture,
rural development
and land reform
R26.5bn
2%
Post-school
education
and training
R77.5bn
5%
Health
Basic education
R187.5bn
12%
R243.0bn
16%
Social protection
R180.0bn
11%
Debt service costs
R162.4bn
10%
Human settlements and
municipal infrastructure
General
public
services
R70.7bn
4%
R195.8bn
13%
Defence,
public order
and safety
R198.7bn
13%
Economic affairs
R215.0bn
14%
Debt-service costs and post-school education grow
fastest
Growth in consolidated government expenditure
Nominal average annual growth over MTEF
Debt-service costs
10.5
Post-school education and training
9.2
Health
8.3
Social protection
8.2
Human settlements and municipal infrastructure
8.0
Economic infrastructure and regulation
7.8
Basic education
7.3
Industrial development and trade
6.4
Science, technology and the environment
6.0
Defence, public order and safety
5.7
Employment, labour and social funds
5.3
Agriculture and rural development
4.7
General public services
2.8
0
17
2
4
6
Per cent
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Funding post-school education: the fastest growing budget
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Government has significantly expanded funding of education over the past 20 years.
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Over the past five years, expenditure on post-school education and training has grown
much faster than other budgets.
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Despite fiscal
constraints, subsidies
to universities grow
at 10.9 per cent each
year and transfers to
NSFAS grow at 16.1
per cent over the
medium term.
On average, noninterest expenditure
grows at 7.1 per
cent.
140
Index (2011/12 = 100)
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Index of budget allocations in real terms
130
120
Post-school education and training
Health
Social security and welfare
Basic education
Police
Defence
110
100
Medium-term expenditure
framework estimates
90
2019/20
2018/19
2017/18
2016/17
2015/16
2014/15
2013/14
2012/13
2011/12
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Funding post school education: a growing share of GDP
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Allocations have increased from 1 per cent of GDP in 2008 to 1.5 per cent today. But most
of this increase benefited vocational colleges, SETAs and the National Skills Fund, rather
than universities.
Post-school education and training budget as a share of GDP
Other
Skills levy
Technical and vocational colleges*
Universities*
1.6
1.4
Estimate
Percent of GDP
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2019/20
2018/19
2017/18
2016/17
2015/16
2014/15
2013/14
2012/13
2011/12
2010/11
2009/10
2008/09
* Includes direct subsidies and allocations through NSFAS
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
2001/02
2000/01
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Budget 2017 – PSET Allocations
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The NDP recognises that South Africa needs high-quality education and training to build
a skilled and capable workforce to support inclusive growth.
Spending expected to reach R89.8 billion by 2019/20, growing at an average annual rate
of 9.2 per cent over the medium term.
Over the MTEF period, R21.1 billion has been added to the spending envelope for the
sector.
– Includes R5 billion provisional allocation in 2019/20.
– Includes R7.3 billion to compensate universities and TVETS for the shortfall caused
by the 0% fee increase for students from households earning up to R600 000 per
year in the 2017 academic year.
A total of 615 000 university students will receive NSFAS loans and bursaries over the
next three years.
The scheme receives additional allocations of R7.7 billion over this period to help
unfunded NSFAS university students from the 2016 academic year continue their
studies.
Transfers to NSFAS is expected to rise from R11.4 billion in 2016/17 to R13.9 billion in
2019/20.
Budget 2017 – PSET Allocations
 Enrolments
– Universities - increase from 1 million in 2016/17 to 1.1 million in
2019/20.
– TVETS - remain stable at 710 535 per year as government works
to resolve institutional challenges.
– Community education and training colleges, will increase from
310 000 in 2016/17 to 340 000 in 2019/20.
 Government allocated R4.2 billion for operational and capital
expenditure at University of Mpumalanga and the Sol Plaatje
University over the medium term.
 New facilities and student accommodation will allow them to enroll
a combined total of 3 875 students for the 2017 academic year.
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Baseline reductions in the 2017 MTEF
Baseline reductions by sphere of government
2017/18
2018/19
2019/20
MTEF total
4 348
2 768
3 267
10 382
0.5%
Compensation of employees
437
471
497
1 405
0.3%
Goods and services
649
667
787
2 103
1.0%
2 850
1 240
1 539
5 629
1.7%
411
390
444
1 245
0.2%
1 757
1 882
1 956
5 594
0.3%
500
529
558
1 587
0.1%
1 257
1 353
1 397
4 007
1.3%
791
813
837
2 440
0.8%
791
813
837
2 440
1.8%
Total baseline reductions
6 895
5 463
1. Transfers to private enterprises and households, as well as capital items
Source: National Treasury
6 060
18 417
0.4%
R million
National government
Transfers to public entities
Other national spending items1
Provincial government
Provincial equitable share
Provincial conditional grants
Local government
Local government conditional grants
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% of baseline
Could a graduate tax fund higher education?
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Given budget constraints, allocating more funds for post-school education would
require either reprioritisation of funds away from other programmes or an increase in
tax revenues.
Several groups have put forward the idea of a graduate tax to be levied directly on all
university graduates.
The idea offers several potential advantages, including effectively targeting private
returns to higher education.
Such a tax is, however, unlikely to raise the revenues needed to fund universities.
– In 2011, there were about 1.3 million individuals who had completed a degree, and
about 80 000 individuals graduated in 2014.
– The National Treasury estimates that if each new graduate faced a one percentage
point increase in their marginal tax rate, the tax would raise about R200 million in
the first year.
– If the increase applied to all graduates, it could generate about R3 billion annually.
– The 26 public universities spent R59.8 billion to operate in 2015.
Conclusion
 Importance of looking at totality of needs
 Government committed to increase funding, but
– Importance of education value chain
– Need sustained inclusive growth = Revenue
 Develop Roadmap through constructive dialogue
and build national consensus
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