Budget for big changes
But clarity is needed on new proposals
BURIED DEEP in Finance Minister Trevor Manuel’s Budget speech – and couched in typically vague terms – was a short comment that could have important implications for medical scheme members in South Africa. The upshot was that Manuel said there would be what really amounted to little more than a reshuffling of the monthly monetary caps on medical scheme contributions.
Nothing to get too excited about there. But far more important was a proposal for the replacement of the medical scheme contribution deduction with “a non-refundable tax credit”. What could that mean for scheme members?
Graham Earle, Durban tax director at BDO Spencer Steward, explains how the current system works. “At present, R625 is a nonfringe benefit amount that can be deducted. So, for example, a husband and wife could each claim R625 as the first two beneficiaries. And if there are two children, a further R380 could be claimed for each. That gives R2 010 that can be deducted.”
The member can also claim anything in excess of 7,5% of taxable income on medical costs that fall outside medical scheme claims and employee contributions.
“Now they’re proposing to scrap that system and allow a nonrefundable tax credit,” says Earle. “It seems they’re proposing that will be at 30% of the prevailing deductions. And it’s being further proposed that it be brought in by 2011. The underlying reason is that employers and the SA Revenue Service are having difficulty monitoring those amounts.”
But, Earle adds, as always there are the uncertainties. Such as what exactly is 30% of prevailing deductions and what are allowable exemptions?
Asked his personal view on which system was better for medical scheme members, Earle says the existing one. “It looks like Manuel is trying to give lower income earners the possibility of a full deduction while higher income earners will have a limited deduction.”
And that really was the theme that ran through Manuel’s Budget.
Blum Khan, CEO of Metropolitan Health Group, says employers should perhaps take a closer look at the proposal. “It seems it might be trying to incentivise lower income workers to join medical schemes. That could also possibly be one of the first blocks in the process leading towards a national health scheme.”
Broader health proposals were aimed very much at improving services for poorer people. One emphasis was “revitalising” rural hospital and clinic facilities – which it’s well known are in a shocking condition and seriously understaffed, from nurses to doctors. The trick will be getting that spending accepted by the relevant provinces.
Any move to encourage medical aid membership, especially among lower income earners, is to be welcomed. However, I look forward to the day – hopefully, but by no means certainly before he dies of old age – when we’re all treated equally. Perhaps I’m naïve: but that’s what I thought democracy and the principles in our fine Constitution were all about.
Present system to be scrapped.