Pro-market policies will sustain free education

THERE’s enough money in this country (for higher education)," according to beleaguered Higher Education Minister Blade Nzimande. "The problem is that a lot of it is in the private sector."

"The problem," Comrade Nzimande, is that your government already extracts too much from the private sector. The effect of current tax at nearly a third of gross domestic product (GDP) is that the average South African works for your government for nearly five months of every year. The private sector (all who invest and work in it) produces wealth. The government (all who work for and benefit from it) consumes wealth. One of world’s highest proportions of the national budget (18%) is already spent on education. You can get more money only by leeching a bigger, richer private sector.

You will have a bigger, richer private sector — paying more tax, creating more jobs, providing for the masses and building the economy you want — if you do two obvious things: extract a smaller proportion of its wealth, and scrap measures that divert resources away from wealth creation.

Countries with quality "free" education tend to be rich thanks to pro-market policies.

If by "private sector", you mean companies, you have a conceptual problem. Companies do not pay tax, people do. A company is a juristic person, a "legal fiction", a notional intermediary between stakeholders. It has no self-serving interests. No one has the slightest idea which individuals ultimately pay "company tax". Which people have less because of it: shareholders, employees, managers, financiers, consumers or tax collectors? It varies hugely between companies and sectors. Taxing companies is like firing shotguns into dark rooms; you have no idea who you hit, and it differs with each shot.

The decision not to increase tertiary education fees leaves you with an estimated shortfall of more than R3bn. You already have that amount from the private sector at your disposal. All you have to do is stop wasting it on just one of many failed government undertakings, South African Airways (SAA). End the SAA farce, which destroys wealth-creating private airlines and diverts spending from the poor to the rich, and your shortfall problem is solved.

You want free tertiary education, but there is no such thing. There are no free lunches and no free lessons. For what is mistakenly called "free" education, you need about R37bn. That is one-tenth of what another failed undertaking, Eskom, wastes. The economy (GDP) is R370bn smaller due to the perpetuation of apartheid’s biggest dinosaur. End the Eskom farce and private sector electricity will provide you, directly and indirectly, at lower tax rates, with much more than you need for "free" tertiary education.

Or, to fund "free" education, you can divert a mere 3.6% of the more than R1-trillion budget from other wealth-consuming allocations.

As the biggest beneficiaries of tertiary education are the educated, it is not obvious that each should be given tens of thousands of rand diverted from spending on less-educated indigents. That is why student loans might be a fairer option. Either way, to have enough money for "free" quality education, you need a prosperous country with the blessings of competition between education providers.

As a communist, you hate the word "privatise", but the concept by another name could be a core ingredient of your solution. You could fund education without producing it; you could fund demand instead of supply.

Your higher education budget is already enough to fund superior privatised education for the poor, with those who can afford it funding themselves. Moreover, you do not even have to lay out all the money. You could mobilise the additional money you want from the private sector by underwriting student loans.

Louw is executive director of the Free Market Foundation.

This article was first published by Business Day - 28 October 2015

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