Godongwana draws the line on funding the NHI – including taxes
National Treasury says that it will still take years for the National Health Insurance (NHI) fund to be established and even longer for the scheme to roll out services—meaning tax measures to fund it are not on the cards for the time being.
Responding to a recent written parliamentary Q&A, the finance ministry said that any and all funding related to the NHI scheme has already been budgeted for in direct and indirect grants over the medium term—and there is no immediate financial pressure to find more funding.
This is because the baseline allocations in the direct NHI grand and indirect grants to the Department of Health are funding preparatory activities and coming from funds that have historically tended to be underspent.
“The baselines for the grants, which primarily fund NHI preparatory activities, have been maintained without any reductions or additions. The preliminary allocations for the health systems and health facility revitalisation components, within the indirect NHI grant, are estimated at R7.3 billion over the 2025 MTEF,” Treasury said.
In addition, it noted that the NHI Act and regulations have not yet been promulgated or released—”and it will take around two years to list the NHI Fund as a schedule 3A public entity.”
NHI cost estimates
“As reflected in the 2024 Medium Term Budget Policy Statement (MTBPS), government is already spending R893 billion on health over the next three years. Against this backdrop, there have been various cost estimates for NHI,” it said.
“For example, the green paper suggests a shortfall of around R74 billion to R106 billion in real 2010 rand. Some work done in 2019 suggested that a limited set of startup interventions would cost approximately R55 billion by 2030,” it said.
Adjusted for inflation, this is around R200 billion – the oft-cited amount required to fund the NHI.
However, “practically and more realistically”, Treasury said, “it may take some years before we reach full implementation because progress will strictly be contingent on the fiscal situation, and a lot of progress is still required in developing strategic purchasing mechanisms”.
This means that the exact funding mechanisms and funding needed may not be known for a long time yet.
It said that existing funds will more than likely be redirected in the form of conditional grants, depending on the scheme’s affordability.
“Complex systems and mechanisms would first need to be developed within the Fund to ensure smooth transition, which will likely take several years,” Treasury said.
“Essentially, there are no immediate or short-term fiscal implications for the 2025 budget cycle, which is why no significant increases are shown in the 2024 MTBPS.
“The Department’s budget bids for the 2025/26 Medium Term Expenditure Framework largely do not include NHI, except for some small aspects of the expansion of the chronic disease dispensing programme (CCMDD),” it said.
Tax question
Regarding the need to raise taxes to fund the NHI, Treasury reiterated that, given the potential timelines for additional expenditure, and uncertainties, there have been no announcements of increases in taxes or levies to specifically fund NHI financial requirements.
“The need for additional tax measures to fund NHI will be evaluated as the reform progresses,” it said.
However, it specifically highlighted that legislation gives the Minister of Finance the exclusive mandate to pronounce on tax matters.
This is a notable distinction as the the NHI Act is not a piece of financial legislation—the health department and health minister have no power to announce or enforce any tax measures.
This means the stated 2% payroll tax and income tax surcharges that have been bandied about by politicians have no bearing until such time as the finance minister and Treasury make pronouncements in this regard.
Concerning the use of public funds through Public Investment Corporation (PIC) to fund the NHI, Treasury was equally as conservative.
While the option wasn’t nixed in the minister’s response, it was made clear that there are processes that need to be followed and alternatives assessed first.
“The PIC is already a major purchaser of government bonds as part of its investment portfolio and makes investment decisions independently and within its legal mandate.
“Discussions between the Ministers will focus on alternatives considered during the budget process and what should be proposed to the Ministers’ Committee on the Budget and Cabinet,” Treasury said.
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