#feesmustfall: Is the R600 000 exemption threshold fair?

Thank you for all the constructive feedback on my previous article.

#Feesmustfall: The forgotten stakeholders

Lets keep this positive energy going.

In 2015, Higher Education minister, Blade Nzimande, announced a blanket zero percent increase for 2016 university fees. And that was equivalent to a tax reduction for wealthy student parents.

Then, in 2016 Nzimande tossed the ball to the universities. And the general result seems to be universities granting a zero percent increase on 2017 fees for all families with income below R600000 pa. This will apparently exempt 70 percent of students from the 2017 fee hike.

But is that fair?

Families with income over R600 000 pa may well argue that they have paid tax for years and now that it comes to payback time, the benefit is reduced. And the counter argument to that is that these families still benefit from the substantial State subsidy paid to universities.

A family income of R600 000 is still going to struggle to support one, let alone more, dependents at university. After all, personal income tax alone on R600 000 is R153 996 or nearly 26%. Not to mention other hefty deductions such as retirement funds and medical aid.  Those families blessed with R600 000 gross earnings probably take home less than R400 000.

So, even if child at university costs as little as R60 000 per annum, that’s 15% of a family’s take home budget. And that’s just not sustainable.

The situation would not be much better if the threshold was increased to the start of the maximum personal income tax band at R701 301 pa. Even at R1 million the family is going to feel the pain that is the cost of  higher education in South Africa.

So is all we can say is that the R600 000 exemption is better than last year’s attempt. But it is not the solution and never will be.

Those families who do not qualify for NSFAS funding and are below R600 000 per annum, ‘the missing middle’, still need a better deal. And the solution is actually quite simple.

The vast majority of the missing middle are subject to employees tax. So shift the emphasis of the problem to the employers. We don’t even have to change much. The tax exemptions needed already exists in section 10(1)(q) of the income tax act. It’s more of a problem that so many employers could not be bothered to administer the concession.

Section 10(1)(q) allows all employers to grant a tax-free bursary of up to R50 000 per annum to all dependents of employees who earn less than R450 000 per annum. Now, if that threshold could be raised to R600 000 per annum, a far more meaningful package would be made available to the missing middle. Some would enjoy an effective fee discount of up to 39%.

This again demonstrates the point that we can solve the #feesmustfall crisis with the refinement of concepts we already have. IF THE PRIVATE SECTOR WILL GET INVOLVED!

Employers try to look cool in the eyes of employees by providing employee benefits such as retirement funds, medical aid, even a gym and a banting diet canteen. But if they asked their employees ‘Why are you here?’ the answer would come back ‘I want to educate my children!’

But employers are not listening.

See https://www.youtube.com/watch?v=pjDGBvwzuA8

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