Extra R2,500 per month tax for every South African taxpayer – if government has its way
Implementing the NHI Bill as it’s intended will require nearly doubling the current health budget, which could mean an additional R30,000 annual tax or R2,500 per month for every taxpayer.
Delivering his address at the formal opening of Parliament on Thursday (18 July), President Cyril Ramaphosa doubled down on the National Healthcare Insurance (NHI) scheme.
He highlighted the goal of providing equal access to affordable healthcare and outlined plans to strengthen healthcare infrastructure, improve training for healthcare personnel, and use technology for better healthcare management.
The NHI in South Africa has sparked debate and criticism from industry stakeholders since its inception.
Although there is consensus that the public and private sectors should work together to meet healthcare needs equally, achieving universal healthcare free at the point of delivery, as the government promised, has left major questions unanswered.
For one, aside from challenges related to its constitutionality, business leaders and experts are concerned about the scheme’s lack of a clear funding mechanism.
The Department of Health announced that tax increases and other tax adjustments are being planned to support the NHI.
However, it is not yet clear which specific taxes will be raised or if a new tax will be introduced.
NHI Deputy Director General Nicholas Crisp stated that the only way to transfer medical aid funds to the NHI fund is through taxes.
He mentioned that whether this will be done through VAT or other taxes is a decision for the National Treasury and the Money Bill, which will be discussed at a later date.
Despite this, the Bureau for Economic Research (BER) has highlighted that the affordability of NHI depends on the structure of the basic benefit package, which the National Department of Health has not publicly disclosed yet.
Initially, it is expected that the package will focus on child health, preventive primary healthcare, and maternal and reproductive services, with potential expansions in the future.
The Department of Health’s cost estimates, based on the 2011 NHI Green Paper and in line with the 2015 and 2017 White Papers, projected the NHI cost to be R256 billion by 2024/25 (2010 prices).
However, when adjusted for inflation, this translates to approximately R470 billion by 2024/25 (2022 prices).
This amount is roughly twice the allocated government health budget of R254 billion for 2024/25.
The BER stated that doubling health expenditure under current fiscal conditions in South Africa is not achievable.
The organization also emphasised that the assumption of fully reallocating private health expenditure to the NHI Fund is highly unlikely, as those who are paying for private healthcare would just stop paying if it went to the government.
According to the BER’s estimation, the National Health Insurance (NHI) will cost the country an additional R216 billion annually.
The NHI Act currently states that the scheme will be funded in four ways:
- Shifting of funds from government departments and agencies and provincial budgets and conditional grants as part of general tax revenue;
- The removal and reallocation of funding for medical aid tax credits;
- Payroll taxes on employers and employees and;
- Surcharges on income tax through a Money Bill by the National Treasury.
However, no costing has been done for the scheme and there is no clear indication how much it will ultimately cost.
But there is no way to avoid the fact that the burden will fall on the country’s shrinking tax base, one way or another.
The National Treasury reported in its February 2024 Budget that the country has 7.1 million individual taxpayers, down from 7.4 million a year ago.
If the estimated cost of the NHI is to be solely funded through taxes, each income taxpayer in South Africa would need to pay an extra R30,442 in taxes every year—averaging R2,536 per month.
The table below shows the National Treasury’s estimates of individuals and taxable income for the 2023/24 financial year.
Economists and other stakeholders have noted that this is a very bad plan.
Renowned economist Dawie Roodt said that South Africa’s tax base is extremely fragile and thin.
He warned that if taxes are increased, the little taxpayers that South Africa has will simply leave, which will be a major problem for the country.
NHI hurdles
Momentum Health Solutions and political lobbyist Ehicore have noted that although the seventh administration cannot currently reverse the status of the NHI Act, with the President unable to return it to parliament, there are still mechanisms that can impact its implementation.
Parliament is empowered to repeal old acts and to make decisions informed by the nature of the legislation and legislation that may have already been initiated, introduced, or passed.
Considering this, Ehicore noted that three mechanisms exist in terms of the NHI Act.
The first is an agreement on a phased approach and only promulgating certain clauses in the Act at differentiated times are subject to consultation between the President, Minister of Finance, and Minister of Health, primarily on budget, resources, and capacity.
This means some distasteful aspects of the NHI Bill may remain unenforced. Alternatively, the executive or parliament introduces an amendment to the NHI Act.
The last and most likely scenario is that multiple litigious actions result in an outcome, forcing the Department to review and amend the Act to address the concerns in a court ruling. Thus, the Act cannot be implemented in its current state.
These are already playing out in South Africa, with the Gauteng High Court ruling that provisions of the National Health Act that force doctors to register for a “certificate of need” are unconstitutional.
Trade union Solidarity chief executive Dirk Hermann, who took the case to court along with groups representing private practitioners, shared parts of the ruling on Wednesday (24 July), where Judge A Millar ruled that sections 36 through 40 of the National Health Act are invalid “in their entirety”.
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