115% income tax hike needed for NHI, and taxpayers paying for salaries not services

The South African rand strengthened on Thursday, driven by better-than-expected current account data. 

According to central bank data, the country’s current account deficit stood at 0.5% of gross domestic product (GDP) for the three months ending March, which was unchanged from the previous quarter. 

Analysts polled by Reuters had anticipated a larger deficit of 0.9% of GDP. The rand was traded at 17.74 against the dollar, marking a 0.4% increase from Wednesday’s close. 

Economists at Nedbank noted in a research report that the current account balance may deteriorate in the remainder of the year, as imports are expected to outpace exports.

On Friday, 6 June, the rand was trading at R17.76 to the dollar, R24.08 to the pound and R20.30 to the euro. Oil was trading slightly lower at $64.68 a barrel.

Here are five other important things happening in and affecting South Africa today:

NHI 115% increase in income tax: An independent economic model indicates that for the National Health Insurance (NHI) to offer care comparable to current medical schemes, personal income tax would need to rise by 115%, or 2.2 times its current level. [BusinessTech]

Paying for salaries not services: The Operation Vulindlela team revealed that South African ratepayers are paying for government for salaries, not services, with a 84% rise in staff costs and a 31% drop in spending on infrastructure between 2010 and 2024.  [Business Day]

SA waiting for US trade deal: South Africa is waiting for a response from the US on its trade proposal, as stated by President Ramaphosa’s spokesperson. Trade Minister Parks Tau presented the proposal and is expecting a detailed reply. Meetings later this month will facilitate further discussions on a new trade relationship framework with the US. [Daily Maverick]

The big problem with the Gautrain: The Automobile Association of South Africa (AA) warned that the Gautrain expansion will overlook those who really need public transport. They criticised the Gautrain’s annual R2.5 billion taxpayer subsidy and argued the costly expansion is unjustifiable, adding that it cannot provide its goal of affordable mass transit. [MyBroadband]

Explosion of grant receivers: In 2003, 12.8% of individuals received social grants. This proportion increased to 30.9% in 2019 and surged to 40.1% in 2024 due to the introduction of the special COVID-19 Social Relief of Distress (SRD) grant. [Daily Investor]