Gigaba said to propose cutting spending to fund R12bn free education bill

Johannesburg - Finance Minister Malusi Gigaba told the ruling party’s top leadership the government will need R12bn to fund President Jacob Zuma’s plan to scrap tuition fees for students from poor homes, according to a person with knowledge of the matter.

Gigaba told the ANC’s national executive committee this week that the Treasury will cut from existing spending programs and won’t announce a special tax or an increase in the value-added tax (VAT) rate to finance Zuma’s plan, according to the person, who asked not to be identified because he is not authorised to speak on the matter.

The Treasury is still exploring ways to fund the plan and will only give further details about the amount needed in the February 21 budget, spokesman Mayihlome Tshwete said by phone.

Zuma unveiled the free-education plan on December 16, two days before Cyril Ramaphosa replaced him as leader of the African National Congress. The party’s NEC met on January 10 in East London to prepare for its anniversary celebrations on Saturday.

Budget hole 

South Africa will have a revenue shortfall of R50.8bn in the fiscal year that ends in March, Gigaba said in the October mid-term budget. In November, Zuma told the Presidential Fiscal Committee to cut spending by R25bn in the 2018/2019 budget and to find ways to add R15bn to the nation’s revenue to help stave off further debt downgrades.

WATCH: Budget shortfall - what does it mean? 

Cutting expenditure could stunt growth in an economy that went through its second recession in less than a decade last year.

South Africa will increase subsidies to universities to 1% of gross domestic product from 0.7% now over the next five years, according to Zuma’s plan.

The Treasury allocated R76.7bn to higher education for the year through March 2018, and estimates this will increase by an average of 8.2% in each of the following three years, the fastest-growing spending item after debt-service costs, it said in the mid-term budget.