SA’s weak economic growth and declining tax base call into question the feasibility of the health department’s plan to raise R200bn in taxes to fund National Health Insurance (NHI), warns a report commissioned by organised business.
The total number of taxpayers assessed by the SA Revenue Service declined from close to 5.9-million in 2018 to 5.5-million in 2021, and just 9% of the population paid 40% of SA’s total tax revenue in 2020, shows the report by consulting firm FTI Consulting.
“It is a stark reminder of the reality we have to work with,” said FTI consulting senior director Paula Armstrong.
The document underpinned the arguments made by Business Unity SA (Busa) and Business for SA as they lobbied parliament last year to amend or reject the controversial NHI Bill. But the full report was only published on Monday, hard on the heels of President Cyril Ramaphosa saying in his state of the nation address earlier this month that he was “looking for a pen” to sign the bill into law, and just days before finance minister Enoch Godongwana is due to present his budget to parliament on Wednesday.
The NHI Bill is the first piece of legislation for the government’s plans for universal health coverage, which aims to provide all eligible patients with health services that are free at the point of delivery. The government has not provided details of the benefits that will be provided by NHI or how it will be financed, but the health department said in December 2022 that it anticipated raising an extra R200bn in taxes to fund the scheme.
VAT increase
Raising this amount of money would require increasing VAT from 15% to 21.5%, increasing personal income tax across the board by 31% or imposing a payroll tax on everyone in the formal, non-agricultural sector of the economy by an average of R1,565 a month, according to the report.
Anecdotal evidence suggested an increasing number of wealthy individuals were leaving SA, with a disproportionate impact on SA’s small and shrinking tax base, said Armstrong. “The kind of drastic expenditure required to pull off a single-payer system will be very, very difficult to raise from the tax base,” she said.
The report highlights how SA’s persistently high unemployment rate leaves many South Africans struggling to generate enough income to meet their own and their dependants’ basic needs, a situation that has been worsened by high consumer inflation eroding the purchasing power of households. Average real take-home pay was 8.3% lower in February 2023 than it was a year before, at R14,255, compared with R15,510 in February 2022, it said, citing research by BankservAfrica.
The health department’s assumption that medical scheme contributions could be redirected into taxes ring-fenced for NHI was unrealistic as there was unlikely to be 100% tax compliance and the Treasury was generally opposed to earmarking taxes for specific programmes, said Armstrong.
The NHI Bill aims to create a single health service for all citizens that is free at the point of delivery, built on social solidarity principles in which the rich and healthy subsidise the poor and sick. One of its most controversial aspects is its provisions for a single-payer system, in which a central NHI fund will purchase health services on behalf of the population. Medical schemes will be prohibited from providing cover for any services offered under NHI.
Busa previously appealed to the government to let medical schemes continue under NHI, arguing that this would ensure the private sector remained viable and reduced the load on public health facilities. It has also advocated for the introduction of low-cost benefit options for medical schemes, which would enable people on low incomes to purchase basic medical scheme plans that cover primary healthcare services.
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