Godongwana suffers a bout of the NHI jitters

Enoch Godongwana, South Africa’s Finance Minister, would prefer investing in government-run hospitals and healthcare infrastructure over implementing the NHI Bill.

During News24’s On The Record Summit, Godongwana stated that the country requires some form of universal health coverage, but at present, it lacks a sustainable funding source.

“I am not worried about the number of people who currently rely on public hospitals. They do it today already. The system is already under pressure now,” he said – adding that the NHI may not be the best solution to this problem.

“The mechanics of it are difficult. If you ask me, I would rather we invest more in upgrading our hospitals and our infrastructure to make them more attractive to everybody,” said Godongwana.

“In that sense, you can make private provision of healthcare irrelevant. For now, we have not done that,” he added.

The minister noted he is still unsure how the NHI will work as the Bill passed by the National Assembly “is missing a lot of things”. In particular, it is missing a source of funding that is sustainable.

Godongwana’s concerns align with a recent report compiled by the Solidarity Research Institute (SRI), which noted that South Africa’s National Health Insurance (NHI) plan requires an additional R300 billion, which the country’s strained budget and taxpayers cannot afford.

According to seasoned economist Dawie Roodt, South Africa’s fiscal deficit for 2023 is set to be between 6% and 6.5% of gross domestic product (GDP), much higher than the minister’s expected 4%,

Roodt added that Godongwana said the government wants to stabilise South Africa’s debt level at 70% of GDP, but it has already increased to 72%. He further expects the country’s debt to increase to 75% of GDP by the end of the year and reach 80% by the end of 2024.

Roodt noted that South Africa currently spends 20% of tax revenue on servicing debt. This debt service cost crowds out other much-needed expenditures – crippling the government’s ability to invest in essential sectors like healthcare and education.

According to the SRI report, in 2026 (the year in which the NHI is supposed to be implemented), an enormous extra R300 billion will be required in order to balance the books. This means healthcare would be the biggest item in the South African budget by far, at a total cost of R660 billion.

The report found that R300 billion could theoretically be generated by abolishing the medical tax credit (about R30 billion) and levying the following taxes: 

• A 40% surcharge on income tax 
• Increasing VAT from 15% to 22%
• A payroll tax of 13.4%
• Increasing corporate income tax from 27% to 45% 
• A combination of these 

“In real terms, none of these is possible because the South African taxpayer is already overtaxed. These theoretical suggestions serve for illustration only and to demonstrate their absurdity.”

The report’s concern regarding the Bill’s need for significant changes to tax in South Africa is shared by Discovery Health CEO Ryan Noach and Roodt, who both warn this strategy will result in a tax revolt in the country.

According to Roodt, only 1.12% of taxpayers (roughly 163,702 South Africans) pay 30% of total personal income taxes in the country, while 19% pay a whopping 87% of total personal income taxes.

Additionally, a staggering 0.09% of corporate taxpayers (only 770 companies) pay 62.5% of total CIT, with 4.4% paying 95% of total corporate income taxes.

“This means the country has an alarmingly narrow tax base, which is a massive concern for the state’s finances. You cannot increase this.

“If this increases, the tax base will collapse as many of the 1.12%, as well as businesses, will simply leave the country – which they are already doing,” said Roodt.

Noach added that even if these taxes were adjusted to meet the needs of the NHI, it would only get the government to around 50% of what the scheme requires. “These three scenarios are entirely unfeasible. You don’t need to understand that there will be a tax revolt. You will never raise it,” he said.

Read: Difficult trade-offs coming to keep South Africa afloat: report