Could a graduate tax fund higher education?

Wednesday, February 22, 2017

Cape Town – National Treasury says the idea of a graduate tax incentive is unlikely to raise enough monies to fund higher education.

National Treasury said this in its Budget Review document following nationwide protests under the banner of “fees must fall” last year, where students took to the streets to demand free education.

As student protests spread out last year, government announced several adjustments to university fees, and appointed a commission to assess the feasibility of free higher education and training.

In its Budget Review on Wednesday, National Treasury said 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.

National Treasury said 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,” it said.

National Treasury said 1.3 million individuals who had completed a degree, and about 80 000 individuals graduated in 2014.

It 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.

Employee tax incentive impacting on youth employment

National Treasury said on Wednesday that it has conducted reviews on some of government’s tax incentives to assess their effect on investment, job creation and growth.

It said where the costs outweigh the benefits, consideration should be given to removing these incentives.

Government has, said National Treasury, reviewed the urban development zone tax incentive in 2012 and the learnership and employment tax incentives in 2016.

“The learnership tax incentive supports training and skills development. It has been revised to provide more support for scarce skills, particularly for artisans, and extended until 2022.”

According to National Treasury:

  • Between 1 January 2014 and 31 January 2017, more than 50 000 firms took up the employment tax incentive. The incentive has had modest positive effects on the growth of youth employment in participating firms, and no notable negative outcomes. The incentive has been extended until 2019 to allow for further evaluation;
  • The tax incentive for qualifying industrial policy projects comes to an end this year. Government will review the programme before taking a decision on its future.

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