Bud­get for big changes

But clar­ity is needed on new pro­pos­als

Finweek English Edition - - Creating Wealth - Gra­ham Earle SHAUN HAR­RIS shaunh@fin­week.co.za

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.

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