‘Impossible’ NHI tax will hit South Africa hard

The Free Market Foundation (FMF) has warned that the government’s planned move to a National Health Insurance (NHI) scheme will place tremendous strain on already struggling taxpayers.

In a presentation to parliament this week, the think tank said that the public sector currently spends around R4,500 on uninsured persons every year.

This was calculated by comparing the total number of people without medical aids or health insurance in South Africa (around 49.5 million) and comparing it to total public health expenditure. In 2019 this amounted to R223 billion, or 4.4% of GDP expenditure.

The FMF said that this figure would effectively be combined with funds from the private health sector to create an NHI fund which will make up 8.5% of the country’s GDP expenditure.

While medical aid tax credits and other expenditure cuts will still be made, the FMF said that South Africa will need to raise another R148 billion through NHI dedicated taxes to meet the required 8.5% target.

This amounts to an effective 2.9% of GDP just on taxes for the new NHI system, it said.

The foundation’s Michael Settas said that this figure was effectively ‘impossible’ to raise, and would require increasing personal income tax by 32%.

This was further exacerbated by the country’s very narrow tax base, with just over half a million individuals paying 73% of taxes in 2019.

“There has been a sharp decline in high-income taxpayers in recent years, so the buoyancy and ability to raise this we question substantially,” he said.

Where is the money coming from?

In a separate presentation, Business Unity South Africa (Busa) raised serious concerns around how the NHI will actually be funded.

The group said that no paper has been published by the National Treasury on the fiscal implications of the bill, as well as an associated money bill.

“This is a massive exercise and will need a great deal of funding – not just from the public sector,” said Busa’s Cas Coovadia. “Treasury has got to be involved in considering the fiscal impacts.”

The NHI currently makes no reference to the exact costs of the scheme once fully implemented.

However, the department of health has said that that payroll taxes and a surcharge on personal income tax could be considered as sources of funding. Such taxes would need to be determined by National Treasury.

At the start of May, the Council for Medical Schemes (CMS) said that the government’s planned National Health Insurance is in full development, with plans to move to phase 3 of the programme from next year.

In its 2021/2022 annual performance plan, the CMS said that phase 3 will include mandatory pre-payment of the new scheme, contracting for accredited private hospital and specialist services, and finalisation and implementation of the NHI Act.

“This (current) period coincides with the beginning of the second phase of the implementation of the NHI,” the CMS said.

“The CMS sees its role as playing both a supportive and a direct role in the delivery of all the activities according to the Act that should occur in the private sector.”

Read: South Africa’s tax season is now open – what you should know about lockdown and filing

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‘Impossible’ NHI tax will hit South Africa hard