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#FeesMustFall – no easy solution, RedBull-December lockup

Wednesday, 28 October 2015   (0 Comments)
Posted by: Author: Matthew Lester
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Author: Matthew Lester (Biznews)

The tax professor at Rhodes University is once again looking for a possible solution to free higher education across the board. In the piece below he looks at the SETA system, corporate tax, VAT and a wealth tax. All of which cannot be tampered with enough to make the idea of free tertiary education a reality, without causing too much distress and at the expense of other more important projects. Lester calls on all those in parliament to give up their December holidays and lock themselves away until a solution can be found. It may be the best festive season a student could ask for, and we’ll also get to see how committed the electorate are to finding a solution to what’s a history defining problem. – Stuart Lowman

I enjoyed yesterdays parliamentary debate on #feesmustfall. It was the best debate we have seen in some time.

The EFF made a useful observation concerning the effects of Base erosion and Profit Shifting ‘BEPS’. I don’t think that even if we uncovered every dodgy BEPS transaction in RSA it would by us out of this mess. But certainly if all bribery, corruption and BEPS suddenly stopped, we would have a solution to the fees crisis and a whole lot more.

The minister of education is clearly trying the best hospital pass since Naas Botha played the game. He suggests that the minister of finance must raise the funds needed by taxing the rich and companies.

So lets run some basic numbers.

The cost of zero fee increase is around R3bn pa. So if that was a 6% increase forfeited, the total remission of fees would be round R50bn pa.

Read also: Matthew Lester: #FeesMustFall – Blanket exemption unaffordable, solution?

This year we had a personal tax increase, the first since 1995. And that raised R9bn. Lets say that’s 20% of what is needed. But here’s the rub. The tax increase was not only on the wealthy, increasing the maximum marginal rate o 41%. The increase extended all the way down to the third tax band at R284100 pa and clobbered 2,5 million taxpayers.

And, even without #feesmustfall, we are staring down the barrel of a similar personal tax increase in the February 2016 budget speech.

So, quite rightly a few honourable members of parliament attacked the SETA system. SDL collections at 1% of payroll collect R15bn pa. So SDL would have to be increased by 3% to find the money. No ways.

Not that there isn’t a lot within the SETA system that needs to re-examined. I am sure that the magnifying glasses are out already.

Read also: Students win Round 1: Zuma freezes 2016 tuition fees

So lets turn to corporate tax. CIT collections are budgeted at R220bn for 2015/16, hopefully that’s R15bn up on 2014/15. So if the corporate tax rate is currently 28%, that’s roughly R8bn per percentage point. So corporate tax rates would have to increase by at least 5% to solve the problem. Again, no ways.

Of course there is always a VAT increase. The 14% standard rate should get RSA R296 bn in 2016. That’s  roughly R21bn per percentage point. A 16% VAT rate would do it.  All so 1 million students out of a population of 54 million can achieve free higher education. No ways again.

So why don’t we turn to a wealth tax. After all the ANC resolved at its recent GNC to investigate wealth taxes?

Currently the primary wealth taxes in RSA are estate duty and donations tax (R1bn pa) and transfer duty (R7bn pa). So how a wealth tax is ever going to solve the current crisis is beyond contemplation.

Even if there was the mother of all tax increases across the board in 2016 it still wouldn’t come close to solving the problem. And it would leave every other priority project of RSA out in the cold.

Read also: Helen Zille: My march with students – from love to ‘Voetsek’

Where the minister of education is right is that everyone needs to get involved.

So here’s my proposal for today. December holidays are cancelled for the leaders across higher education, national treasury and big business. Lets lock them all up until they can come up with a workable intelligent solution. Before we even start the new academic year and addressing the other major issues surrounding the transformation of higher education.

And RedBull can sponsor the event. Just because consensus will take some time to achieve.

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