Growth estimate lowered to 2.7%

THE TREASURY has acknowledged that the funding of the National Health Insurance (NHI) system – which will provide “free” health services for South Africa’s population to be phased in over a 14-year period from this tax year – is more than a little taxing.

“The new system will provide equitable health coverage for all South Africans,” Pravin Gordhan said in his Budget speech, but he acknowledged that “funding options include an increase in the VAT rate, a payroll tax on employers, a surcharge on the taxable income of individuals or some combination of the above”.

“Alongside options for increased tax revenue, the role of user charges is also being investigated,” Gordhan said.

It was expected that an additional revenue source would be needed in 2014/15 amounting to about R6 billion, which was not currently provided for in the medium-term expenditure framework, he said.

Health Minister Aaron Motsoaledi told a media briefing at Parliament yesterday that the 10 pilot project areas would be announced next month. In these areas infrastructure will be enhanced, school health education programmes instilled and chief executives appointed to co-ordinate health services at hospitals.

According to Gordhan, R1bn was being allocated for the NHI pilot projects and increasing primary health care visits. “To improve health infrastructure, R450 million has been provided to upgrade about 30 nursing colleges. A further R426m is allocated for initial work on rebuilding five major tertiary hospitals.”

To accommodate the provision of anti-retroviral treatment for HIV/AIDS patients at the CD4 threshold of 350, an additional R968m was made available over the medium term.

Achieving an “appropriate balance” in the funding of the insurance scheme was necessary, Gordhan said, to ensure that the tax structure remained supportive of economic growth, job creation and savings. A discussion paper would be published by the end of April.

Barry Visser, a senior tax manager at Grant Thornton, commented that it was worrying that the taxpayer was still in the dark as to how NHI was going to be funded.

Meanwhile, Gordhan said that a tax credit for contributions to medical schemes would be introduced from March 1. It would kick in at a rate of R230 a month for the first two beneficiaries and R154 each for additional beneficiaries.

Taxpayers of 65 years and older and people with disabilities will be included in the second phase of this reform, which will be implemented in 2014. page 7

Ethel Hazelhurst AS EXPECTED the official growth estimate for calendar year 2012 has been revised downward. Yesterday Pravin Gordhan cut his projection for gross domestic product (GDP) growth in the current year from 3.1 percent to 2.7 percent.

The economy had averaged about 3 percent growth a year since 2009, he said. Gordhan’s latest estimate is lower than the 2.8 percent forecast from the Reserve Bank last month.

Gordhan’s earlier projection was made in October last year, at the time of the mediumterm budget policy statement, before Europe moved into recession and the global economic recovery showed signs of losing momentum.

The Budget Review notes that the International Monetary Fund (IMF) expects global growth to slow from an estimated 3.8 percent last year to 3.3 percent this year. The IMF estimate for this year is down from 4 percent previously.

Slow growth elsewhere cuts the revenue South Africa can earn from its exports as well as the investment capital it will receive. However, the cycle of slow global growth will pass.

“As the world economy strengthens, GDP growth will accelerate to 3.6 percent in 2013 and 4.2 percent in 2014, led by robust household consumption and stronger public and private sector investment,” the Budget Review says.

But Gordhan said in his speech: “These are modest rates of expansion relative to the social and developmental challenges we face and the opportunities that our mineral wealth and human capabilities offer.”

He spoke of “a vision for our country and our economy” to lift the growth rate, and referred to Economic Development Minister Ebrahim Patel’s New Growth Path and Planning Minister Trevor Manuel’s draft National Development Plan.

Infrastructure spending will play an important part in driving growth.

Gordhan referred to a list of 43 major infrastructure projects, adding up to R3.2 trillion, set out in the Budget Review.

He conceded there had been weaknesses in the state’s infrastructure capacity.

“We must be frank about that. In the past, spending has lagged behind plans. To remedy this, (the) government will step up the quality of planning, costing and project management so infrastructure is delivered on time and on budget.”