Finance Minister Malusi Gigaba presented a budget clearly designed to stave off the possible implosion of the higher education sector as well avert further credit downgrading.
S&P and Fitch have already downgraded South Africa’s credit rating to sub-investment status while the third one, Moody delayed its decision has placed the country on review for downgrade.
He announced the VAT tax increase to boost government’s revenue shortfalls and also generate sufficient capital to fund fee-free higher education. From April 1 this year VAT tax will increase by one percentage point to 15%. This is expected to generate R22.9bn more for the fiscus. The last time government increases the VAT was in 1993.
Gigaba said the immediate government interventions to stabilise the state-owned enterprises bedevilled by serious governance challenges and the introduction of austerity measures to curb government spending are good enough reason to avert a second credit downgrade.
He sounded generally optimistic despite the subdued economic growth that the country experienced in the recent years. He said the optimism is informed by the improving global economic outlook, adding that government will be able to deliver key social priorities by growing the economy and creating new sustainable jobs.
Gigaba said this is a tough budget but also hopeful one. “This is a tough, but hopeful budget. It required us to make difficult but necessary trade-offs, important to ensure that this budget is a platform for renewal, inclusive growth and job creation. It directs spending to our most pressing national priorities: educating our youth, protecting the vulnerable and investing in enablers of inclusive growth. It moderates spending and raises the revenues required to contain the growth in national debt, whilst trying to minimize negative effects on growth.”
He said the lacklustre economic growth which saw revenues eroding; the government will increase its consolidated spending from R1.67 trillion in 2018/19 to R1.94 trillion. This, he said, represents “a nominal annual average growth of 7.6 percent or 2.1 percent in real terms”.
As is in the past, the Department of Basic Education (DBE) continues to be a major recipient of the budget allocation. It received R792 billion, while the Department of Higher Education and Training will get an additional amount of R57 billion over the medium.
DBE will, over the medium term, be allocated R3.8 billion for its ‘School infrastructure backlogs Grant’ to fulfil its ‘National Minimum Norms and Standards for Schools’ obligations. This will enable it to refurbish “82 inappropriate and unsafe schools, and provide water to 325 schools and sanitation to 286 schools,” Gigaba said.
A further R31.7 billion is allocated for ‘Education infrastructure Grant’ so that the department can build new schools, upgrade and maintain existing infrastructure, and provide school furniture.
DBE’s National School Nutrition Programme Grant is allocated R21.7 billion to provide meals to about 9 million learners each school day at 19 800 schools. According to DBE, provision of meals to children not only helps to boost learner attendance but it also leads to improved academic performance.
Funza Lushaka bursary scheme also received a financial injection of R 3.7 billion. This will see 39 000 bursaries issued to prospective teachers in priority subject areas such as Mathematics, science and technology will be provided over the next three years.
To avoid possible student revolt, the government was forced to re-allocate its resources to make room for the implementation of the fee-free higher education.
Last year during the 54th ANC Elective Conference in Nasrec, former President Jacob Zuma surprised the nation by announcing the implementation of a fee-free higher education after the Heher commission found that it was not feasible at this stage. This was despite the medium-term budget having already been delivered, forcing Treasury to re-prioritise its finances amidst growing concerns that this will worsen the fiscus ballooning deficit.
Gigaba said this represents a major and progressive step forward as it will enable government to guarantee easy access to tertiary education for all South Africans who qualify based on merit, not class position.
This will be phased in over time and all first-year students from poor and working-class families with a family income below R350 000 per annum at universities and TVET colleges in the 2018 academic year will be funded for the full cost of study, Gigaba said.
In terms of the funding model returning NSFAS students at university will have their loans for 2018 onwards converted to a bursary, said Gigaba, adding this was crucial as it would break the cycle of poverty and confronting youth unemployment.