The Minister of Higher Education, Dr Blade Nzimande, held a press briefing on Tuesday 20th September 2016 in which he announced a recommendation of university fees to increase by up to 8%, with the shortfall for what the minister says is the “missing middle” students (from households earning below R600 000 per annum) and poor students to be covered by government. His announcement further fuelled the burning call of free education by the country’s youth, and this was illustrated by the immediate protest action that erupted at various campuses across the country following his announcement.
While there were many neoliberal voices that concurred with the minister that free education was not feasible, with some even bringing in the casuistry that free education would further increase the already wide inequality gap between the rich and poor as it would benefit the rich even more, the students are steadfast in their demand of free education; and as part of the body ourselves, we here to chaperone the movement’s calls with a clear ideological position that solidifies the demands as just and revolutionary precisely because the powers that be are hell-bent on dismissing the call for free education from all angles they can find. So let us briefly unpack this matter of free education…
1. WHY FREE EDUCATION?
It is very saddening that we constantly have to clarify this position in 2016, when in 2016 we should not be protesting for free education but enjoying it as part of the many things that real freedom should have brought for the black majority. However because our parents were sold dreams by a long compromised so-called former liberation movement that is now in governance, we are still here waging wars that should have long been won.
Education is not an isolated entity, it exists within a socio-political and socio-economic context and as such the call for free education is drawn from and involves these contexts. It is an open secret that we live in the most unequal society in the world, wherein two of the wealthiest individuals have wealth between them that surpasses the cumulative wealth of the bottom 50% of the population (approximately 27.5 million people). The same country has around 54% of the population living below the breadline/ poverty line of US$2.34 per person per day; and all these realities are as a result of the continued failure to redress the injustices of the past that left the black majority landless and economically excluded, with white monopoly capital still holding 97% of the country’s wealth in their hands (forget that rhetoric about PIC and everyone being shareholders with invested pension funds, it’s stale and clutching on straws). These inequalities have created a situation wherein most people in the country cannot afford higher education, with fewer than 10% of the youth coming out of the schooling system ever making it to university and an even smaller percentage completing their undergraduate degrees as a result of the systematic exclusion within the university system. The Unilever Institute estimates that over 70% of households in South Africa have a household income of less than R6000; this means that the annual income of these households is less than the annual cost of putting a student through a single academic year at university. Gaining access to free education is a step in addressing these disparities that are otherwise irreconcilable without economic reform that pursues true economic justice; and equal access to education, not access on the basis of economic class is mitigates – on one front – these disparities. It says that all children will access the same education facilities and not be constrained by finances. What better place to start this restorative justice journey than here?
Give all children free access to universities, and as a way to distribute equal access we will put all necessary quotas of admission in place, there will be children from rural and township schools in a ratio that represents the presence of their schools proportion while we are doing away with the parallel schooling systems that exist for the rich and poor. It is abominable that we have dual schooling systems, with one an extremely inferior caricature of the other.
2. WHO WILL PAY FOR THIS “FREE EDUCATION”?
The rhetoric that has been flying around is that there is no such a thing as free education; well we know this very well, we are saying that the government should pay for free quality education not the individual students who walk into institutions to receive an education and we thought it was as obvious as the fact that the sun rises from the east – clearly there is some lag going on but we hope that is now understood by everyone.
Any government that represents the interest of the development of its people understands the fundamental importance of an educated youth and invests in it; as the ancient Greek philosopher, Aristotle, aptly puts it:
“All who have meditated on the art of governing mankind have been convinced that the fate of empires depends on the education of the youth.”
By this measure, wherein after 22 years young people are still taking to the street asking for free education, it seems our government is disinterested in building a country wherein its own people are beneficiaries; and if that is the case, it begs the question of who the government is really working for when not for its people. A government, by definition, is employed for public service. They ought represent the interests, and run with the mandate of the people who employ them into government – the citizens. Now the citizens have among many things called for free education, and as a government representing the interests of the people it serves it is a no-brainer that they should be fulfilling the demands of the citizenry.
The government currently says it does not have money to pay for free education from its current fiscal budget, and although most of the fiscus goes to wasteful expenditure, exorbitant public servant salaries, unwarranted luxuries and outright theft through corruption, we also understand that the fiscus budget as a percentage of the GDP (at approximately R1.0699 trillion) is only 25.8%. It does not however justify why as a government, they are only spending 0.75% of the GDP on higher education in a country where the overwhelming majority of young people remain excluded from access to higher education; it just smacks of unwillingness to change the status quo that continues to be built on the exclusion of the black majority. So we are going to help the government with ways to find the money, and they will therefore have no more excuses, unless of course it is to express unequivocally that they are disinterested in serving the demands and needs of the people.
The private sector is where money for education is going to come from, and the government must stop being shy about that fact. You will hear everyone who speaks saying that they also need the private sector to play a role, as if all these wealth mongers are going to come and pledge their ill-begotten billions to the government for free education, or anything else for that matter. The private sector already steals hundreds of billions annually from the country through Illicit Financial Flows, and they are forever complaining about “high taxes” on top of it. Rather the government must use the legislative power bestowed upon them to get money from the private sector for free education. It should not be working out a postulate for quantum gravity really; it is just a matter of decisiveness.
3. FINDING THE MONEY
The current estimated university population is around 1 million students. Now at the estimated cost of R120 000 per student annually, free education will cost the government approximately R120 billion, which will be R90 billion more than the current R30 billion being given to higher education. While the National Development Plan (NDP) projects that there should be 1.6 million students accommodated in the country’s universities by 2030, we reject that as very slow and unwilling intended expansion. The ANC government did not build any university in 20 years, and the two that they started in 2014 accommodate fewer students combined than a local high school, which is abominable. We are saying that there should be radical expansion of existing institutions, fast tracking of building more institutions and even allow the formulation of new and more innovative ways of dispensing university education – we live in the information age after all. However, working with the current figures and seeking to raise an amount of R120 billion for higher education – this would put the fiscal spend on higher education at 3% of the country’s GDP (that sounds better). Now where do we find this money?
- Harness illicit Financial Flows
Illicit Financial Flows (IFFs) are a good place to start harnessing the money; Global Financial Integrity economists, Dev Kar and Joseph Spanjers, estimated that a whopping R3 trillion left the country in IFFs between 2004 and 2013. This places us seventh overall in countries where the highest IFFs are recorded, and the first in Africa. Many, including myself, have argued that this estimate is rather modest, and this amount could well be three to four times the figure that Global Financial Integrity reported. We are looking at around R8-10 trillion that has left the country during the abovementioned time period, incorporating money that is illicitly transferred using the NGO industry and other unregulated sectors like sports and the arts. It then begs that our government should be putting measures in place to keep these hundreds of billions, running at an average of 30% of the 2015/16 fiscus, within the country. SARS should stop being used in proxy wars between politicians, and as a personal division to spy and purge competition by companies such as British American Tobacco, and actually start doing its job of ensuring strict revenue collection, and be reinforced with the capacity to close down IFFs.
With the average annual figure estimated by Global Financial Integrity as the amount leaving South Africa as IFFs annually standing at R250 billion, nearly 25% of the entire tax revenue, harnessing this money could solve our problems instantaneously. Using a multidisciplinary approach involving IRBA, the Transfer pricing Unit at SARS, Customs, adjustments to requirements in corporate reporting and other special tools, IFFs could soon be drastically reduced. When the state is ready to take action and create a body that is tasked with fighting this demon, I am available at short notice to share collected research about a conceptual framework on a way forward in harnessing IFFs and saving the hundreds of billions that end up in bank accounts in tax havens.
Getting just 50% of the estimated IFFs will give us an additional R125 billion in the fiscus, of which we can put half towards education. That leaves us with R57.5 billion to find.
- Increase Tax revenue collection from the Private Sector
In South Africa, it seems we are living to sustain large corporates and their owners. While Personal Income Tax remained unchanged as a percentage of total tax revenue between 2009 and 2014 at 34.5%, Corporate Income Tax went down from 22.9% to 19.9% in the same time period; a whole 3%. The fact that ordinary citizens pay almost double the portion of what companies pay is one thing, but the fact that it this gap is growing and companies are getting more tax relief is abominable and criminal considering that ordinary citizens pay most of the VAT as end users of products.
Corporate Income Tax is currently capped at 28% (with labour brokering companies at 33%); however this was not always the case. Between 1984 and 1991 companies paid 50% of their taxable income and by 1994 the companies tax had gone down by a full 10% to 40% of their taxable income; in 1995 it dropped by another 5% to 35% of taxable income. Needless to say this was all CODESA, giving white monopoly capital a huge tax holiday ever since, to the percentage being currently 28%. I do believe however that this holiday has run its course; we need that money now so we can run the country.
Many countries that have free education accessible to their citizenry (and foreign students) have a very high ratio of total tax revenue as a percentage of GDP; Scandinavian countries like Norway, Sweden, Finland and Denmark have 43.6%, 45.8% 43.6%, and 50.8% respectively. Germany, which recently started to implement free education, has 40.6% total tax revenue as percentage of GDP. Cuba, our friend to which we have taken plenty of medical students to be trained there, has 44.8% total taxable income as a percentage of GDP. So it is logical that we are going to have to increase the state coffers, and we are going to start by taxing corporates more seeing as they have had a tax relief, and then go to the top 10% earners on individual taxation.
The model that I propose is as follows:
- 40% tax on Extractive Industries
This figure is very modest, and in actual fact 51% should be a minimum standard tax percentage on extractive industries world throughout where nationalisation is not in place. It is common knowledge that the mineral resources of a country should benefit all the people of that country, not just a select few who reap rewards in the billions of rands annually while the overwhelming majority is stuck in poverty as already illustrated above. It is a sentiment the World Bank supposedly shares, that extractive resources through good governance and transparent management, should be a tool for poverty alleviation and boosting shared prosperity (don’t ask me why they said that). Therefore the mining sector (and related industries of mineral processing like the steel manufacturing industry) is the first place where we are going to look for money for education (as we expand the percentage ratio of the tax revenue to the GDP simultaneously). Countries like UAE, Qatar and Gaddafi’s Libya demonstrated with stellar distinction how the use of the natural resources of a country can be employed for the full benefit of its citizenry; there is no Personal Income Tax in both Qatar and UAE, even for foreign citizens. However we are not there yet, we will get there; but for now we need to introduce a tax regime that ensures that the mineral resources of this country benefit every citizen before making billionaires out of a few foreigners. The mining industry contributes around 7% of total government revenue on average; the actual amount was approximately R85 billion in 2015. Mining and Prospecting companies have a very complex tax regime that allows them to somewhat cheat the system and end up paying far less than they should. We need to cut the bureaucratic smokescreen and be clear that we are taxing mines a singular tax on revenue.
Now at this new proposed tax rate of 40%, and cancelling the VAT rebate on diesel (mines get money back from SARS on the VAT spent on diesel) and other reliefs, we will collect R134 billion from the industry’s total revenue of R335 billion made in 2015 (as reported by the PwC SA mine report). That is now an additional R49 billion and almost a third of our target of R150 billion. Adding this R49 billion to the R62.5 from harnessing IFFs gives us R111.5 billion and our deficit is now R8.5 billion. We are getting somewhere now are we not?
- 40% tax on Commercial Banks
Commercial Banks in South Africa (and in most countries) are a law unto themselves and just exist to extort wealth from the people for the benefit of their owners. We have a monopoly going on that makes a killing out of us in the banking industry of South Africa, and in fact the whole financial sector. Banking should, de facto, be a service offered by the state and generating revenue for the state. If you outsource banking, you might as well have outsourced governance altogether. Worst of all we have even outsourced the entity that is supposed to oversee banks; however let us not engage that for now and focus on the tax regime.
In 2015, the big four banks had an operating income of R277 billion, and total profits of R73.8 billion according to the PwC analysis on major banks. In effect, the big four banks were making R200 million a day in profits for the whole of 2015. Where is most of that money going? When we are being charged exorbitant fees, it is for the profit of a few. The total tax paid by the big four in 2015 was R22.2 billion according to the same PwC analysis report; and with the new proposed rate we can get R31.7 billion from the banking industry – an additional R9.5 billion. We are moving to R121 billion in the total money we have, already at a surplus of R1 billion.
- 35% tax on corporates and 30% on SMEs
This here is just adding to the surplus that will be growing the percentage of tax revenue to GDP. SMEs paid a larger tax percentage (68%) than big corporates (32%) of the total R193.5 billion collected as Corporate Income Tax in 2015 as reported by SARS. That needs a bit of readjustment, hence the proposed figures. 35% is also the federal Companies Income Tax in the USA, it is not too steep a figure considering that this was the corporate income tax rate from 1994-1999 and the Nats had a ask of 50% once upon a time. Restorative justice you know?
- 2% increase in personal income tax for education tax purposes on the top two tax brackets
I think the rationale is pretty clear on this one, and as such will not expand on it further. This tax will also raise a good amount to subsidise shortages further. Of course these are not the only ways, there are several other ways that can be explored as long as they keep restorative justice in mind – the inequalities and injustices of the past must be addressed, and the demand for free education is but a first step in that process…
What must definitely be added as another source of revenue in the above list is introducing cuts in the salaries and benefits of public servants; and the ridiculous number of people who are employed by government for redundant posts – like why do we need 9 provinces, and why do we need district municipalities as intermediaries between provincial government and local municipalities? It is such things that are an unnecessary burden on the fiscus and are the reason you find 70% of the allocated budget going to salaries, and ghost workers in the mix over there. We pay our public servants more than most first world states; and we cannot looking for money for fee free education while the same people we task with the mandate continue in extravagance. A rethink of our governance structures and accountability systems is also called for. We can recover a good R80 billion that goes off corruption (already R30 billion according to the Auditor-General) and wasteful expenditure (high salaries, unnecessary staff and redundant departments, overpriced tenders, luxuries etc.) if we create a lean, efficient and self-reliant government.
That the money to finance fee free education can be found is a straightforward and definite answer, and anyone who says otherwise is playing with rhetoric to protect interest of those who benefit from status quo. The issue now is the political will to extract the money out from where it is and for once the ANC government must put the needs of the majority first and not a few of the ruling class who are the beneficiaries of the current socio-economic inequalities of our society.
Of course Bretton Woods institutions and their rating agencies will come out with threats of downgrades and all other weapons in the economic warfare arsenal, we are fully aware of that, but we can no longer breathe in this status quo and we are saying we will no longer be a harvest ground of imperialism while our people remain excluded from everything and exist as non-beings in the land of their forefathers. Freedom is not given, it is taken; and this is the beginning of taking that freedom.
The commission on fees should not be investigating how feasible free education is, rather how to get the money for free education. The argument is not feasibility here and as I said, I am available on standby for the necessary number crunching on how and where we get the money for fee free education. We need to run a country here and not a banana republic, because by the looks of things we have an oligarchy running the show and the expense of the majority.
I submit here.