NHI will result in additional tax revenue
THE subject of the National Health Insurance (NHI) scheme recently reared its head again at the time of last year’s Medium Term Budget Statement. The money involved is, at this planning stage, insignificant — just under R21m. It also seems clear that the NHI will be phased in over a lengthy period (14 years). The first phase will focus on primary healthcare, health promotion and preventative care.
However, costs are set to escalate rapidly. The Finance Minister also indicated recently that next year’s budget might have an initial allocation of R500m for 10 pilot projects. It has been estimated that the initial phase of the NHI might require as much as R140bn between 2012 and 2025.
Exactly how the NHI will look, and how much it will cost, is by no means clear at this stage.what is an unavoidable truth is that it will result in an additional need for tax revenue. Currently the extra funds required can be provided out of existing tax collections. However, as the cost of the NHI rises into billions of rands, additional taxes are likely to be necessary.
The options that were mooted by the Finance Minister at the time of his annual Budget Speech in February last year were “a payroll tax (payable by employers), an increase in the VAT rate and a surcharge on individuals’ taxable income.” It was stated that these were merely options and that a process of consultation would be followed to determine optimum funding solutions.
The choice of these options is by no means surprising. At present we derive about 80% of our total tax revenue from — in descending order — individual income tax, Value Added (VAT) and corporate income tax. Therefore, in looking to fund an ambitious and expensive project such as the NHI, it is inevitable that the Finance Minister would look first to new sources of revenue close to these three areas.
Tax is, of course, an emotive subject, particularly when it hits the pockets of individuals, as at least two of these op- tions would do. The suggestion that the VAT rate might be increased can be seen as particularly controversial, since VAT is perceived to be a tax on the poor. It may be that the Finance Minister was flying a kite — or flying three kites — to gauge the emotional response to these suggestions. Given the lack of certainty regarding the NHI, the tax options are still no clearer than they were at the time of the Budget Speech. However, the three options suggested then probably remain the most likely sources for future tax revenue for the NHI.
The three options are underpinned very different philosophical approaches to the issue of public health. The decision as to which tax — or combination of taxes — should fund the NHI says much about who the powersthat-be feel should be paying for public health.
VAT is perhaps the form of taxation most closely related to the main intended beneficiaries of the NHI. It seems safe to say that NHI is intended primarily for the benefit of the poorer sectors of our community. Therefore, to the (limited) extent that it can really be said that VAT is a tax on the poor, at least an increase in the VAT rate to fund the NHI will mean that the poor are making a contribution to the cost of the scheme.