UCT: The middle class are already tapped out

Thomas Johnson asks for how much longer the approach of 'squeezing them 'til the pips squeak' can go on for

University funding: A response to UCT: The middle-class are tapped out

In an email to staff, students and alumni on August 28 University of Cape Town (UCT) vice-chancellor Max Price proposed students from households earning above R500 000 a year should pay a fee increase.  "If government can't pay for fee increases, the rich can".

Price said wealthy students benefit (more than poor students) when fees do not increase by inflation, that is, the cost of university is cheaper for them in real terms.

UCT/Price appears not to understand the structural limitations of the economy.  Their superficial rationalisation is typical of the fallacy of populist socialist thinking that passes for economic policy and planning in South Africa.

Who are the rich?

Who are the "rich" and “wealthy”, aside from the arbitrarily defined income threshold of R500 000?  For a socialist the rich are anyone who works and pays taxes, with the additional caveat that they are white.  In South Africa they are the middle-class.

It’s this group – let's call them the rich for argument's sake – of only 5 million taxpayers that provides Treasury with annual revenue of about R1tn, supports one of the largest and most dysfunctional cabinets in the world, supports 17 million social grant beneficiaries – an astounding third of the population – and pays for free social housing.  

They pay for a highly remunerated inefficient and corrupt public service for which they get poor returns.  If we exclude 2.2 million government employees, 2.8 million people are supporting the country’s population of 55 million.

The rich also pay municipal rates and levies, part of which is diverted to free basic services for the poor, and to repair/rebuild public property and essential services that protesters like UCT's very own Rhodes Must Fall group destroy with clockwork regularity.

They pay high fees at their childrens' state schools, or astronomical sums if they despair of the mediocre educational system and go private.  

They pay high rates for medical aid and private healthcare – including private hospitals that the WHO reports are among the costliest in the world – because the state health system is crumbling under cadre appointments, neglect and mismanagement.  And health minister Aaron Motsoaledi would have them pay for, critics accuse, the unaffordable national health system.

They pay for private security, high walls and electrified fences to secure their homes because the incidence of crime remains unacceptable high and the criminal justice system has failed them.

The rich are forced to pay import parity prices for cars – an expense the poor don't typically have; if they did they would not be poor.  This despite the fact they are already subsidising the motor industry about R20 billion, 20c of every R100 tax collected.

The rich need cars, notwithstanding the crippling associated costs, to get to work to keep the economy going because transport networks, particularly rail, is scarce, inefficient and failing – Prasa “may just as well close shop”.  

Of course, food and other essential expenditure are increasing above inflation, and the poor also have this burden.  But unless they are the super-wealthy or Clinton and Saxonwold-socialising politicians, even the middle-class is looking for ways to cut costs.

The rich, as UCT define them, are paying for the direct and collateral damage to the economy of state capture, the meltdown of the ANC and its internecine fight for state resources that from December last year until now caused the loss of value of the currency and wiped off about R156bn from their pensions, savings and investments.  

UCT’s rich threshold: R500 000

Who are these “rich” people really? 

UCT says the rich/wealthy have a household income above R500 000 a year.  If we assume a two-parent household, each would earn in excess of R250 000, starting just over R20 000 a month.  People in this bracket are not rich.  They are semi-professional, mid-level, white-collar workers.

Sars’ statistics for assessed individual taxpayers for 2014 show the median income range in three categories between R150 000 to R400 000 are a combined 44.7% of total taxpayers.  Individuals earning R200 001 – R300 000 alone are 20.2%.

People in high income categories individually earning above R500 000 are a combined total 11.5% of all taxpayers.

Is it fair to ask the “rich” to pay more, and if it is, how much more revenue would it produce for the university?  Surely it would not make a significant dent in the funding deficit of R4bn for 2017-18?

A sliding, progressive fee scale would be palatable if South Africa’s population was economically homogenous and more people were paying tax.  But it’s not with only 4.9 million individuals who were assessed (less than the 6.6 million expected to submit returns) for the 2014 tax year.  Can we expect them to pay more, albeit indirectly through increased university fees not applicable to other taxpayers?

SA is 31st highest tax-paying nation

According to a May 2015 article in BusinessTech, quoting KPMG data, South Africa is the “31st highest tax-paying nation in terms of individual tax”.  Many of the countries above SA on the list, that is, those paying more, are developed countries including EU, Japan and Australia with socially homogenous populations where the tax burden is shared among a greater proportion of the economically active population.

“According to a quarterly Labour Market Report by Solidarity only 3.3 million out of a total 33 million eligible tax payers pay 93% of all personal income tax.  Worse, only 3.7% – or 1.1 million people – pay just short of 70% of total income tax received.”

It could be argued UCT’s proposal is in line with the equity principle of taxation that states those with higher incomes should pay more.  But because this minority (out of the total population) are already paying taxes from which universities derive the bulk of their income, it is not equitable at all – in fact, Price is proposing a form of wealth tax. 

Alternatively, it is a welfare subsidy, a transfer payment from income earners – including those with relatively modest incomes – who pay full fees to those with little or none who don’t. 

In November 2015 Judge Dennis Davis, head of the Davis Tax Committee, warned of a tax revolt if government does not address corruption and spend taxpayers’ money wisely. 

‘“Money spent on excessive wage increases to public servants, bailing out SAA and the construction of two new universities could have been used better elsewhere,’ Judge Davis warned.”

“SA should not have built two new universities but should instead have invested the money in a national bursary fund, which would have ensured that many deserving students received tertiary education ‘free of charge’, Judge Davis said.”

Price does not indicate if R500 000 is before or after tax, that is, disposable income, and if household expenditure and indebtedness were considered.  But I think he means gross income.

Universities might collate basic household income data from students especially if they applied for financial aid, which they do through the National Student Financial Aid Scheme (NSFAS).

However, both UCT’s undergraduate application and NSFAS’ financial aid application asks for very limited information – UCT if the applicant’s family receives a social or child grant, and NSFAS, “Annual income [from all sources] before deductions and tax”.

SA’s population is in debt

Reports this year state 86% of the population have debt, and according to the National Credit Regulator, 10.3 million have difficulty meeting monthly repayments.  Households earning between R38 401 and R102 400 a month have the highest debt of 61% followed by those earning R12 801 to R38 400 (55%).

The weak economy, inflation and interest rate increases, and not forgetting South Africans’ consumer-driven expenditure and affection for bling, are contributing to high levels of indebtedness.  Households most affected are the middle-class – those that fall squarely within UCT’s “rich” category.  For those lucky – or unfortunate – to have children at university, how does Price expect them to pay more? 

I don’t know how much thought or investigation, if any, Price and UCT devoted to the proposal and the full economic impact on affected households, and whether it would make a lasting and material difference to the funding crises. 

But if it’s anything like their inept management of the Rhodes statue removal, violent campus protests, censoring art and Flemming Rose, then it is a superficial, inadequate and knee-jerk reaction not informed by the economic reality facing South African households. 

UCT’s fees proposal is socialist-driven

The proposal is typical of socialist-driven agendas and idiot policy proposals government, ANC and left regularly vomit up.  If Price is honest, he might say it’s targeted predominantly at affluent white households because the majority of black households earn below the threshold (except high-ranking government officials).

The Fees Commission is investigating free higher education. Mike Wills, in his article Blade does not seem to have learnt fees lesson, calls it a “time-honoured fudge” and the matter “doesn’t need a judge (but) policy, politics and budget priorities”. 

It needs courageous decision-making of which there is none from the president down.  The underfunding of universities is like other matters of national importance – energy, state enterprises, infrastructure and rail – government ignored and mismanaged. 

The optimal solution is a national student fund, as Judge Davis said.  But like other government agencies, NSFAS cannot manage its affairs and allowed a situation to develop with R21 billion owing.  By January 2016 they had recovered only R200m, with half from current students and half from former students who are now working.  If that debt were cleared it would take care of the funding deficit and then some. 

South Africa already spends about 20% of total expenditure or 7% of GDP on education, one of the highest in the world.  Free university education is therefore not possible. 

Where will the additional money come from – certainly not from the country’s already stressed 5 million taxpayers?  Should taxes be raised, incidentally for a system with a high-drop-out rate?  Or reduce budgets of other departments, including public sector salaries and social welfare?

Since 1994 university enrolment has doubled to almost 1 million and government aims for 1.6 million by 2013. 

Black South Africans in particular believe a university education – not TVET colleges – is a way out of poverty.  Therefore, universities are under pressure to admit students, despite many being unprepared – what better way for government temporarily to mitigate the high unemployment rate than dump scores of unskilled youngsters at universities and college – and to fulfil government’s national plan of producing a skilled labour force. 

But funding per capita has been declining since 1994, and fees have increased above inflation.

Solution: scale back enrolments and upgrade TVETs?

Perhaps the unthinkable should be considered and some universities should be scaled back by reducing the number of students and allowed to focus on high-merit scholarship and research, as a few of them once did, and not become, as Jonathan Jansen, outgoing vice chancellor of University of the Free State, fears, low-quality degree factories

At the same time direct a meaningful portion of higher education funding and prospective tertiary students to the so-far neglected, but an upgraded, TVET college system.

The funding problem developed over 20 years from 1994 under the benign neglect of the ANC government and incompetent to indifferent education and higher education ministers.

But the tipping point of the immediate crises and stale mate – 0% increase for 2016 and uncertainty about 2017 and the future – started at UCT last year in the consequence-free environment where executive management, led by Price, capitulated to violent and threatening fallist protestors. 

UCT, still considered South Africa’s leading university but no-one knows for how long, therefore has a responsibility to take some leadership to find a way out of the morass.  Instead the best they offer is the golden teat of the middle-class taxpayer who must cough up more and more, and pay for their recklessness and government’s incompetence.

Disclosure: I am a former alumnus of UCT.  I dissociated myself from the university because of events there since 2015. 

I did not receive the email sent to alumni mentioned at the beginning of the article.