Clarity on how NHI will be funded urgently needed
Budget has made no new provision, which could mean the Treasury has not yet engaged with issue
Funding the NHI from taxes could have disastrous effects, as this could lead to a 31% increase in personal income tax, a rise in VAT from 15% to 21.5%, and the imposition of a payroll tax of about R1,565 a month on those employed in the formal, non-agricultural sector
In recent months South Africans have been standing on the shores of the Rubicon, and it seems we will soon be getting our feet wet. The National Council of Provinces passed the National Health Insurance (NHI) bill in December last year. It has now been sent to President Cyril Ramaphosa to be signed into law, and it seems likely to happen before the elections to be held on May 29.
Minister in the Presidency Khumbudzo Ntshavheni said in January that signing the bill was a priority, so that its full implementation could take place under the ANC’s self-anticipated new administration. It should come as no surprise, then, that the promulgation of the bill is happening now, as observers have noted the political drive behind the NHI for quite some time. It is an ANC promise after all.
The NHI bill has been heavily criticised because it does not specify how the proposed system of health insurance will be financed in a country that already finds itself in a strained financial position. For this reason, all eyes were on the 2024 budget speech delivered by finance minister Enoch Godongwana on Wednesday, in which it was hoped some light would be shed on the matter.
Unfortunately, no new provision was made for NHI as such, which perhaps indicates that the Treasury has not yet engaged with the issue. Overall, health was allocated R848bn over the medium-term expenditure framework (an ongoing threeyear budgetary plan), which includes R11.6bn to address last year’s wage agreement, R27.3bn for infrastructure, and R1.4bn for NHI. According to the finance minister, this allocation demonstrates the government’s commitment to the new health insurance system.
However, we are left only to speculate on how the NHI system will be funded. According to those in the know, we will not be seeing any tax proposals for NHI in the short term. The department of health has said about R2bn will have to be raised for NHI funding (other sources say the figure is closer to R3bn), and that this is likely to be done via a surcharge on personal income and payroll taxes. Other potential sources of funding might be found in redirecting the existing tax revenue now provided to provincial health departments and scrapping medical scheme tax credits.
When the NHI was criticised for being unaffordable in the current economic climate, having possible adverse tax implications and being unfair (in that it makes employed people foot the bill for the scheme by requiring them to fund it via payroll and income tax), the department of health responded by saying taxes are paid not only by the employed, but also by about 62-million South Africans who pay indirect taxes such as VAT and fuel levies. Even the poor contribute to national income.
This is a dubious claim. According to Statista, about 22.1-million South Africans are below the age of 18, meaning they do not pay direct taxes and contribute very little in indirect ones. A further estimated 3.1-million South Africans are between the ages of 65 and 80 or older, meaning they pay taxes at a different, lower rate, and are possibly retired and not actively employed. In addition, South Africa’s latest unemployment statistics show that the country has a joblessness rate of 32.9% — one of the highest in the world. Meanwhile, the South African Revenue Service (Sars) recorded just under 26-million active taxpayers in the 2022/23 tax year.
What is more, funding NHI from taxes could have disastrous effects, as this could lead to a 31% increase in personal income tax, a rise in VAT from 15% to 21.5%, and the imposition of a payroll tax of about R1,565 a month on those employed in the formal, non-agricultural sector.
If the wealthy are going to suffer under this increased tax burden, how much more will lower-income South Africans suffer? When fuel prices are raised, everything gets more expensive, including transport costs. How is a person on minimum wage — which will increase from R25.42 to a meagre R27.58 an hour from March 1, little more than R1,000 for a 40-hour work week, or about R4,000 to R5,000 a month — supposed to afford food if VAT is so massively hiked? It seems what NHI will supposedly give in access to healthcare it will take from other socioeconomic rights.
So where else could the money come from? Not from medical aids, as any attempt by the government to fund NHI using medical aid contributions probably is not possible. According to Discovery CEO Ryan Noach, legal protections are in place to guard against the nationalisation of these funds, as they are voluntary contributions by medical aid members that are effectively held in trust by these schemes.
With all this in mind, how NHI will be funded seems to raise endless questions and provide few answers. Hopefully, the Treasury will pay attention to this in the near future and provide some muchneeded clarity on the way forward. In the meantime, as we wait on the Rubicon’s shores, we earnestly hope we do not drown.