4 big tax increases needed to fund South Africa’s new health system

Trade union Solidarity has flagged concerns with the planned implementation of the National Health Insurance (NHI) and how it will ultimately be funded.

The NHI Bill is currently undergoing a public consultation process, with a number of healthcare, civil society and political groups presenting on why the new system should or should not be introduced.

In a recent presentation to parliament, the union noted that the funding figures for the proposed scheme are already out of date as the project was first mooted as far back as 2010, with no clear costing analysis made in subsequent white papers in 2015 and 2017.

This means that cost estimates for the new scheme range anywhere from R256 billion to R394 billion per annum, with an estimated funding gap of between R33 billion and R226 billion. It added the scheme will rely like rely on hefty tax increases to make up the funding shortfall, including:

  • An income tax surcharge of up to 20%;
  • A VAT increase from 15% to 20%;
  • A payroll tax of 5.5%;
  • Increasing corporate income tax from 28% to 42%;
  • A combination of these.

Irrespective of where the cost of the new NHI actually falls, Solidarity said that the new scheme is fundamentally unaffordable, unnecessary and unworkable. It noted said that the lower-end estimate of R33 billion for a watered-down version of the scheme was no longer possible due to rising costs, while other costs were not accurate as they rely on a strong governance framework.

“If you look at just the AG findings on health departments…only the Western Cape managed in the 2018 report an 82% clean audit in the health sector, with Gauteng second on 52%, and after that it’s Mpumalanga with 24% clean audits and no one else got above that.

“There’s a lot that can be fixed before we try to scrap the system and start over. And we should rather be focussing on those reforms that have been recommended,” said the group’s Connie Mulder.

South Africa’s biggest open medical scheme Discovery has also flagged concerns around the proposed National Health Insurance (NHI) scheme and how it will be funded.

In a separate presentation to parliament, Discovery said it was broadly supportive of the bill, but was concerned about the funding shortfall it will create and how this will be passed on to government budgets and, ultimately, taxpayers.

The group estimates that private health spend, including the medical aid financing of around nine million South Africans, currently equates to R212 billion (44%) of total healthcare funding in South Africa.

If medical schemes are eliminated, as is proposed by the NHI Bill, the R212 billion funding gap will need to be absorbed by the state, Discovery said.

“If taxation is used to increase state healthcare budget to this amount, additional 4.1% of GDP needs to be collected in taxes – unlikely to be feasible.

“A more feasible pathway to increase public sector per capita funding is to maintain medical scheme funding, expand access to the employed population while state funds focus on the most vulnerable.”

Read: More doctors expected to leave South Africa because of the NHI

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