University Funding & 2015 MTBPS: hearing with DHET & Council on Higher Education, with Minister

Meeting report

Minister on university students’ fees

Dr Blade Nzimande, Minister of Education, reminded the meeting of the commitment expressed in the National Development Plan (NDP) of having a university cohort of 1.6 million by 2030, including 5 000 doctoral graduates per year. The NDP had also set a target of having all students who passed a means test, of having the full cost of their studies covered by National Student Financial Aid Scheme (NSFAS) loans and bursaries.

He gave a brief timeline of the student protests that had brought about the government's commitment to a 0% increase in tuition costs. The cost of having no fee increase in 2016 would be R2.33bn. He admitted that government funding of the university sector had been insufficient. Higher education inflation had played a part, and therefore the cost drivers of university education needed to be carefully studied. Student fees totalled about R22bn, making them roughly equal to the block grants given to universities. Block grants, he explained, excluded grants earmarked for a particular purpose, such as NSFAS. This was a huge burden for students. Whilst the total block grant had increased by 30% in absolute terms, it had not kept pace with the increase in enrolments, so that the subsidy had in real terms decreased by 1.3% per student.

Dr Nzimande said that he sympathised with the plight of university students, but it was vitally important that Technical and Vocational Education and Training (TVET) and Community Education and Training (CET) colleges should not be forgotten. Whatever support was approved, it should be spread across the entire post-school education and training (PSET) sector.

Department of Higher Education and Training on university funding

Mr Gwebinkundla Qonde, Director-General: Department of Higher Education and Training (DHET), said that the presentation would look at the Post-School Education and Training (PSET) sector as a whole -- university, TVET and CET funding, and the Department itself.

He began by reiterating the 2030 student number targets from the NDP: 1.6m in universities, 2.5m in TVET colleges and 1m in CET colleges, and compared this with their current capacity. He described the policy context of higher education funding since 1997.

He explained that the R2.33bn shortfall arising from the 0% fee increase, consisted of R1.915bn in tuition fees and about R415m in residence fees. The government's share of the R2.33bn shortfall would be R1.935bn, with universities making up the remaining R395.7m. However, the no fee increase had longer term implications beyond 2016. Funding would have to increase by at least R2.4bn in 2017, and going forward, the increase would have to match higher education inflation, which was about 9.8% per year, if student fee increases were going to be kept at inflation levels.

Mr Qonde gave a general overview of the financial situation of the NSFAS, and gave an outline of what would be required to fully fund 25.5% of the undergraduate cohort, which was the percentage estimated to require financial assistance. Over the period of the 2016-19 medium-term expenditure framework (MTEF), NSFAS would require around R37bn. If the current family income threshold of R125 000 per year was raised, the figure would be even higher.

He discussed some macro-economic details of South Africa's higher education funding. In terms of both the percentage of gross domestic product and the percentage of education funding allocated to higher education, South Africa was well below continental and global averages. In order to bring the country into line with appropriate global benchmarks and meet the NDP targets for enrolments, an additional R19.7bn per year for university subsidies would be needed. In the TVET sector, an amount of R7.2bn per year would be needed to meet the NDP enrolment target. High-level political decisions would need to be taken regarding the PSET sector, but though the costs were high, they were an investment in the country's future.

Mr Theuns Tredoux, Chief Financial Officer: DHET, rounded off the presentation by discussing the Department's key budget pressures.

Council on Higher Education

Prof. Narend Baijnath, Chief Executive Officer: Council on Higher Education (CHE), said that although a zero fee increase for 2016 would resolve the immediate problem exposed by the student protests, it did not address the conditions that had triggered the student protests in the first place. He did not believe that free higher education for all was a long-term solution -- those who could afford to, should have to pay.

The prognosis for the next decade was not good, particularly if the bleak economic outlook continued, as pressures mounted from all sides. He detailed some state-level interventions that could increase the funding available, such as a graduate tax. He also discussed some institutional interventions that could be made.

In conclusion, he said that it was now clear that university funding needed to be adjusted in order to ensure long-term sustainability. Students who could afford fees should pay, and expansion rates needed to be tied to the quantity of resources made available to the institutions, in order to ensure that quality standards were maintained.

Discussion

Ms S Shope-Sithole (ANC) said that the Department was aware that it needed to find the money. As an aside, she suggested that the DHET might more appropriately be named the Department of Post-School and Further Education and Training, to better reflect the range of its mandate.

Dr B Bozzoli (DA) was pleased to hear that some of the arguments that had been put forward by the DA were now fully accepted by the Department, and was also relieved to hear that the Minister and the Department were at last admitting that there was a crisis. The problem could not be solved by the establishment of task teams -- a deeper structural change to university funding was needed. She thought the Department had been neglected, and since it had been the President himself who had declared that there would be no fee increases, the Department should not be left to come up with the money on its own, especially in the short term.

Dr C Madlopha (ANC) agreed that the Department had been sold short by the Treasury.

Dr Nzimande said that there was widespread cross-party agreement that the DHET had much greater responsibility than had been realised, and that some of its mandate was in reality unfunded. He also claimed that the arguments to which Dr Bozzoli referred -- which had concerned, among other things, the low percentage of GDP given to the university sector -- had been included in the White Paper on post-school education and training.

Mr Y Cassim (DA) said that the occurrence of the protests proved that government had not been sufficiently proactive.

Dr Bozzoli asked what the financial implications of the no fee increase would be for the 2015/16 year. How would universities meet their financial needs before 1 April 2016 when their subsidies came through? Had the Department considered this period, and could the Appropriations Committee do anything to find the funds -- estimated to be R500-700m -- that were needed in the short term? This was a particularly serious problem for the historically black universities, which did not have reserves on which they could draw in the short term, and were apparently in precarious financial positions.

Mr M Mbatha (EFF) shared Dr Bozzoli's concern about the historically black universities.

Mr D Maynier (DA) wanted a precise figure on the shortfall for 2015/16.

Mr Tredoux explained that DHET did not need additional allocations for the current financial year, as any immediate shortfall would be funded from within its own budget.

Mr Mbatha felt that protests of a similar nature had been going on at these universities for years, but they had been ignored. It was only when there was unrest at places like the University of the Witwatersrand and the University of Cape Town that anyone seemed to take any notice. A large protest at the Tshwane University of Technology (TUT) in 2014, for instance, had been ignored.

Mr Qonde said that government had not ignored them. He himself had been at TUT at the time of the protest and had investigated it thoroughly, and addressed the issue, which had arisen purely due to institutional deficiencies. Many of the government's engagements at historically disadvantaged institutions went unreported in the media, however.

Mr M Figg (DA) said that proper costing of the NDP enrolment targets could have prevented the present situation from arising. He noted several references to free education for the poor and asked what the benchmark for being considered poor was.

Dr Nzimande said that the benchmark was R125 000 per year of family income -- the same as the benchmark for NSFAS. It was under review, however. He noted that many of the protesters were not actually poor according to this definition but were part of the lower middle class, above the threshold for NSFAS support but still struggling with fees.

Mr Figg asked whether the funding contribution of the universities to the R2.33bn shortfall would be distributed equally, and whether the universities had agreed to the numbers.

Dr Nzimande said that some of the wealthier universities had actually volunteered their contributions.

Mr Figg was concerned about the steeply rising administration costs at NSFAS.

Dr Nzimande said that a review of NSFAS was being implemented.

He took the opportunity to address the allegations that he had withheld a report on the feasibility of free higher education. He said it had been released to all the stakeholders, including Parliament. It had not been widely publicised to prevent giving the impression that it was necessarily the government’s policy. The report had said it would be feasible only if the government made money available.

Mr Cassim said that the Minister was conflating a report on NSFAS with the report on free higher education. He denied that the Minister had submitted the latter report to parliament.

Mr Mduduzi Manana, Deputy Minister: DHET, insisted that the report had been circulated to all stakeholders, including the Portfolio Committee on Higher Education.

Mr Figg appealed for the Minister to communicate quickly with students so that they could know what their fate next year would be, and could plan accordingly.

Dr Nzimande assured the Committee that there would be no unnecessary delays.

A Member asked the Minister to comment on the issue of balancing the institutional autonomy of universities with their public accountability.

Dr Nzimande said that government policy since the White Paper of 1997 had been to ensure both institutional autonomy and public accountability. He said that some institutions had abused their autonomy in order to block transformation. He felt that there would always be some tension between autonomy and accountability, though. He had just gazetted a Bill that dealt with the matter, but there needed to be a proper conversation -- it could not just be a matter of legislation.

Mr N Gcwabaza (ANC) warned that the government should not try to take over the day-to-day running of universities.

A Member suggested that unspent budget allocations from other government departments should be redirected to the DHET to address the crisis.

Mr Cassim noted that the figures for funds required to meet NDP enrolment targets had been given for universities and TVET colleges. He asked what the figures were for CET colleges. He asked the Department to comment on NSFAS-eligible students who were at risk of being excluded because they had debts. They were being prevented from writing exams or having their results withheld at some institutions.

Mr Manana said that the Presidential task team was addressing this issue.

Dr Madlopha said that it had become clear that the issue of education was not just a matter for the Minister or for the universities, but was a broad societal issue that needed to be taken very seriously. She agreed with the Department that the core drivers of expenditure at universities needed to be looked at, and welcomed the Department's insistence on looking at the PSET sector as a whole.

Mr Manana agreed.

Mr L Gaehler (UDM) said that the media were reporting that protests were continuing, even after exams, around the issue of free higher education. He asked how the Department planned to respond to this situation.

Mr Manana said that he had not heard anything about this.

Mr Gaehler asked if the CHE could clarify the concept of a graduate tax, and noted that they had made no mention of the possibility of a wealth tax.

Prof. Baijnath said that these two concepts were roughly the same thing.

Mr C Kekana (ANC) worried that this seemed punitive toward graduates, and wondered whether a student solidarity tax might be a better idea.

Mr Gcwabaza said that, in the long term, some form of tax was the most obvious way of raising the money needed to fund the shortfall.

Mr Michael Sachs, Deputy Director-General for the Budget Office, National Treasury, gave a general response to the question of where the extra money needed for the PSET sector could come from. He welcomed the flowering of an engagement with the budgeting process, particularly from students, that had emerged in the wake of the fees protests. Summarising the Department's findings, he said that the higher education sector needed additional funding of at least R30bn per year, increasing at a rate of about 10-11%, which was far higher than the consumer price index (CPI). He stressed that Treasury was not sitting on money, and that it simply had to decide whether to allocate it to higher education.

He suggested four possible sources from the additional funds could come.

• It could come from tax. The Minister of Finance had asked the Davis Committee to look into a wealth tax. A 2% increase in Value Added Tax (VAT) would be enough, and an increase in income tax was also an option, although it would need to be significant. The difficulty with raising tax was that the economy was currently performing poorly and it would lead to reduced growth.
• It could be reprioritised from other departments or areas of expenditure. The problem with this was one of scale. One could not realistically hope to raise upwards of R30bn through efficiency improvements and cost-cutting measures. Reducing the size of the Cabinet had been suggested, but to put things in perspective, the entire national budget for executive and legislative services was only about R12bn.
• It could be reprioritised from other PSET sub-sectors. Although the DHET had indicated the entire PSET sector needed to be considered, the Sector Education and Training Authorities (SETAs) budgeted for surpluses over the MTEF period -- that is, the revenue they received was less than the expenditure they were planning. In this connection, earmarked taxes needed to be looked at.
• It could come from loans from the private sector. South Africa had a very developed financial sector relative to other developing countries.

In closing, he said that the adjustment budget announced by the Minister would not need to be amended to cover the shortfall in the current financial year.

Mr Qonde pointed out that SETA surpluses had accumulated due to expenditure ceilings imposed by the Minister, which had now been lifted. One should not imagine that there was money within the PSET sector just lying around doing nothing.

The Chairperson gave a brief summary of the most important outcomes of the meeting for the question of appropriations. Although he agreed in principle that funding for higher education needed to be increased in the long term, he explained that a decision would not be made that day, but only once the Committee had concluded all of its hearings. The long-term issue was also not one that could be addressed within the scope of the Medium Term Budget Policy Statement, which was what the Appropriations Committee was currently considering.

The meeting was adjourned.