How much more you would have to be taxed to make NHI ‘work’

 ·12 Aug 2019

The National Health Insurance (NHI) Bill, tabled last week in Parliament, has been forwarded to the chairperson of the Portfolio Committee on Health, Dr Sibongiseni Dhlomo.

Dhlomo said the committee will meet and discuss the programme of the NHI Bill, which will have an extensive public consultation process.

Analysts and economists meanwhile, have been digesting the plan and its implications for the economy.

While the bill lays out the groundwork for the NHI and how it will be funded, it still lacks much-needed detail, particularly when it comes down to exactly how much the scheme is going to cost each year.

The original NHI white paper estimated that the scheme would cost the economy around R256 billion a year – however, former health minister Aaron Motsoaeldi admitted that this was a “guesstimate” that was thumb-sucked by a local firm.

The Department of Health said that National Treasury plans to release a revised paper with a revised costing estimate.

According to Intellidex analyst Peter Attard Montalto, NHI is expected to cost an additional R165 billion to the fiscus in current prices, per year from 2026, based on PwC estimates used by the Davis Tax Committee (DTC) in 2017.

In its findings on the NHI and its implications for South Africa, the DTC said that even at R256 billion a year, in a 3.5% GDP growth environment the scheme would still likely hit a shortfall of around R72 billion by 2025. At a growth rate of 2% the shortfall would be R108 billion.

South Africa’s projected growth rate for 2019 is 0.6%.

Deputy director-general for NHI, Anban Pillay has moved to allay fears of immediate taxes – saying that no new taxes will be introduced in the short term, and will only be introduced in the ‘late stages’ of the scheme’s rollout, once it is up and running.

However, the bill was explicit that its funding will come from taxes in the end.

This includes:

  • General tax revenue, including the shifting funds from the provincial equitable share and conditional grants into the Fund;
  • Reallocation of funding for medical scheme tax credits paid to various medical schemes towards the funding of National Health Insurance;
  • Payroll tax (employer and employee);
  • A surcharge on personal income tax, introduced through a money Bill by the Minister of Finance and earmarked for use by the NHI fund.

Attard Montalto said that no specifics for these taxes were given in the published report, but the DTC previously determined an option that included many of the taxes that the department has now said it will eventually be implementing.

These early projections included a 2% increase to payroll tax on employers and employees, a 2% surcharge on taxable income and a 2.5 percentage point increase in VAT.

However, these figures were based on 2010 pricing, Attard Montalto said, and overestimated fiscal buoyancy.

“Overall the DTC outlined that NHI would only be feasible with strong growth in the economy, and seeing new revenues directed towards NHI,” he said.

In line with current buoyancy rates, the DTC’s original figures would result in a shortfall of around R45 billion a year, and a negative impact on wider tax collection maybe of the order of R50-75 billion.

“This would mean by our calculations the funding wrapper would need to be more like 2.7% payroll tax, 2.7% surcharge on taxable income and 3.5 percentage point increase on VAT – and that is only to address the NHI hole, not the wider revenue shortfalls,” he said.

Attard Montalto said that Treasury likely wants to avoid a tax ‘doom cycle’, and is thus focusing more on the expenditure side than revenue side (ie, funding by reprioritising budgets), but the wider risks of the scheme still persist – specifically medical workers salaries under NHI, and emigration of skills.

“Overall we think NHI is unworkable in the current economic and fiscal context, even if sorely needed. Indeed it can do more harm than good at a macro level,” he said.

“The implications need to be thought through.”

Read: New NHI bill will change which hospitals you can use

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