University funding and the budget Commission of
Description: University funding and the budget Commission of Inquiry into Higher Education and Training Pravin Gordhan Minister of Finance 3 March 2017 Points of departure Higher education as part of the education value chain Inclusive growth Revenue
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slide1. University funding and the budget Commission of Inquiry into Higher Education and Training Pravin Gordhan| Minister of Finance
3 March 2017<br>
slide2. Points of departure 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 2<br>
slide3. South African realities 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.
Wealth remains highly concentrated – 95 per cent of wealth is in the hands of 10 per cent of the population.
35 per cent of the labour force are unemployed or have given up hope of finding work.
Despite our progress in education, over half of all children in Grade 5 cannot yet read adequately in any language.
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.
Our towns and cities remain divided and poverty is concentrated in townships and rural areas.
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. 3<br>
slide4. Transformation for inclusive growth To realise the vision of the Constitution, South Africa needs transformation that opens a path to inclusive economic growth and development.
Growth without transformation would only reinforce the inequitable patterns of wealth inherited from the past. Transformation without economic growth would be narrow and unsustainable.
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.
The budget plays a central role in transformation by promoting redistribution and directing scarce resources towards catalytic investments in human and physical capital.
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. 4<br>
slide5. Education is key to transformation The quality of our schools and further education institutions is at the heart of our commitment to our children’s future.
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.
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.
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.
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. 5<br>
slide6. Together we can find a roadmap for higher education 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. 6<br>
slide7. Stronger and more inclusive growth is required 7 The projected rate of economic growth is insufficient to reduce unemployment, inequality and poverty.
The budget is highly redistributive, but stronger economic growth is needed to sustain the fiscal position.
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.<br>
slide8. National Treasury Presentations to the Commission 2nd briefing: 7 October 2016
Constitutional and policy background to resource allocation in the national budget
The bill of rights
Government policy documents
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
Further considerations in the allocation of resources to universities 1st briefing: 12 August 2016
Fiscal policy and macroeconomic context
Choices and constraints in Budget 2016
Taxation: principles and medium term policy considerations
Budget process 8<br>
slide9. The basic budget equation Expenditure = Revenue + Borrowing EXPENDITURE REVENUE BORROWING Inputs, outputs and impacts
Effective allocations
Efficiency Economic growth and revenue collection
Tax rates and economic growth
Tax policy and tax administration
Taxpayer compliance, tax morality and the Laffer curve Growth and Sustainability
Growth and interest rates
Credibility
Ability to pay vs. willingness to pay 9<br>
slide10. Tax revenue shortfall in 2016/17 Gross tax revenue for 2016/17 is R30.4 billion lower than the original estimate at the time of 2016 Budget.
There is uncertainty regarding the path of revenue collection. Risks include weaker-than-expected economic growth, and concerns about tax morality, compliance and administration. 10 Revenue performance against budget targets (2016/17)<br>
slide11. Tax proposals The tax proposals this year will raise an additional R28 billion.
A new top personal income tax rate of 45 per cent for those with taxable incomes above R1.5 million.
An increase in the dividend withholding tax rate from 15 per cent to 20 per cent.
Limited bracket creep relief, increasing the tax free threshold from R75 000 to R75 750. 11 Revenue impact of tax proposals An increase of 30c/litre in the general fuel levy and 9c/litre in the road accident fund levy.
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.<br>
slide12. Consolidated fiscal framework 12 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<br>
slide13. Main budget primary deficit continues to narrow 13 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<br>
slide14. Net debt stabilising below 50 per cent of GDP 14 Gross and net debt outlook<br>
slide15. The trend rate of growth has fallen 15 Real GDP growth
Source data: Reserve Bank and National Treasury<br>
slide16. Consolidated spending in 2017/18 16 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.<br>
slide17. Debt-service costs and post-school education grow fastest 17 Growth in consolidated government expenditure
Nominal average annual growth over MTEF<br>
slide18. Funding post-school education: the fastest growing budget Government has significantly expanded funding of education over the past 20 years.
Over the past five years, expenditure on post-school education and training has grown much faster than other budgets. 18 Index of budget allocations in real terms 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, non-interest expenditure grows at 7.1 per cent.<br>
slide19. Funding post school education: a growing share of GDP 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. 19 Post-school education and training budget as a share of GDP * Includes direct subsidies and allocations through NSFAS<br>
slide20. Budget 2017 – PSET Allocations 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. 20<br>
slide21. 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. 21 Budget 2017 – PSET Allocations<br>
slide22. Baseline reductions in the 2017 MTEF 22 Baseline reductions by sphere of government<br>
slide23. Could a graduate tax fund higher education? 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. 23<br>
slide24. 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 24<br>
3 March 2017<br>
slide2. Points of departure 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 2<br>
slide3. South African realities 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.
Wealth remains highly concentrated – 95 per cent of wealth is in the hands of 10 per cent of the population.
35 per cent of the labour force are unemployed or have given up hope of finding work.
Despite our progress in education, over half of all children in Grade 5 cannot yet read adequately in any language.
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.
Our towns and cities remain divided and poverty is concentrated in townships and rural areas.
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. 3<br>
slide4. Transformation for inclusive growth To realise the vision of the Constitution, South Africa needs transformation that opens a path to inclusive economic growth and development.
Growth without transformation would only reinforce the inequitable patterns of wealth inherited from the past. Transformation without economic growth would be narrow and unsustainable.
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.
The budget plays a central role in transformation by promoting redistribution and directing scarce resources towards catalytic investments in human and physical capital.
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. 4<br>
slide5. Education is key to transformation The quality of our schools and further education institutions is at the heart of our commitment to our children’s future.
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.
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.
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.
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. 5<br>
slide6. Together we can find a roadmap for higher education 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. 6<br>
slide7. Stronger and more inclusive growth is required 7 The projected rate of economic growth is insufficient to reduce unemployment, inequality and poverty.
The budget is highly redistributive, but stronger economic growth is needed to sustain the fiscal position.
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.<br>
slide8. National Treasury Presentations to the Commission 2nd briefing: 7 October 2016
Constitutional and policy background to resource allocation in the national budget
The bill of rights
Government policy documents
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
Further considerations in the allocation of resources to universities 1st briefing: 12 August 2016
Fiscal policy and macroeconomic context
Choices and constraints in Budget 2016
Taxation: principles and medium term policy considerations
Budget process 8<br>
slide9. The basic budget equation Expenditure = Revenue + Borrowing EXPENDITURE REVENUE BORROWING Inputs, outputs and impacts
Effective allocations
Efficiency Economic growth and revenue collection
Tax rates and economic growth
Tax policy and tax administration
Taxpayer compliance, tax morality and the Laffer curve Growth and Sustainability
Growth and interest rates
Credibility
Ability to pay vs. willingness to pay 9<br>
slide10. Tax revenue shortfall in 2016/17 Gross tax revenue for 2016/17 is R30.4 billion lower than the original estimate at the time of 2016 Budget.
There is uncertainty regarding the path of revenue collection. Risks include weaker-than-expected economic growth, and concerns about tax morality, compliance and administration. 10 Revenue performance against budget targets (2016/17)<br>
slide11. Tax proposals The tax proposals this year will raise an additional R28 billion.
A new top personal income tax rate of 45 per cent for those with taxable incomes above R1.5 million.
An increase in the dividend withholding tax rate from 15 per cent to 20 per cent.
Limited bracket creep relief, increasing the tax free threshold from R75 000 to R75 750. 11 Revenue impact of tax proposals An increase of 30c/litre in the general fuel levy and 9c/litre in the road accident fund levy.
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.<br>
slide12. Consolidated fiscal framework 12 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<br>
slide13. Main budget primary deficit continues to narrow 13 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<br>
slide14. Net debt stabilising below 50 per cent of GDP 14 Gross and net debt outlook<br>
slide15. The trend rate of growth has fallen 15 Real GDP growth
Source data: Reserve Bank and National Treasury<br>
slide16. Consolidated spending in 2017/18 16 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.<br>
slide17. Debt-service costs and post-school education grow fastest 17 Growth in consolidated government expenditure
Nominal average annual growth over MTEF<br>
slide18. Funding post-school education: the fastest growing budget Government has significantly expanded funding of education over the past 20 years.
Over the past five years, expenditure on post-school education and training has grown much faster than other budgets. 18 Index of budget allocations in real terms 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, non-interest expenditure grows at 7.1 per cent.<br>
slide19. Funding post school education: a growing share of GDP 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. 19 Post-school education and training budget as a share of GDP * Includes direct subsidies and allocations through NSFAS<br>
slide20. Budget 2017 – PSET Allocations 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. 20<br>
slide21. 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. 21 Budget 2017 – PSET Allocations<br>
slide22. Baseline reductions in the 2017 MTEF 22 Baseline reductions by sphere of government<br>
slide23. Could a graduate tax fund higher education? 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. 23<br>
slide24. 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 24<br>