The financial implications for taxpayers of the implementation of National Health Insurance (NHI) are coming ever closer, and the department of health is pushing hard for this to happen sooner rather than later.
It is forging ahead with the implementation of the NHI Act regardless of the multiple court challenges to both its provisions and the method of its adoption by parliament.
NHI aims to provide universal health coverage through a centralised fund, which will pay public and private healthcare providers. One of the ways in which the fund may be financed will be by using about R34bn a year that is redirected to taxpayers through the system of medical tax credits, which gives them tax relief for their contributions to medical aid schemes and for medical expenses. That reduces the amount of tax they have to pay.
The department’s deputy director for NHI, Prof Nicholas Crisp, told parliament’s health committee recently that discussions were under way with the Treasury about the imposition of thresholds for medical tax credits.
These thresholds as to who can benefit from the credits would probably apply to high-income earners in the short term, as the department has stressed in court papers that the removal of the credits for middle- and low-income earners will take place only in later phases of the introduction of NHI. It said that what was planned were “modest changes impacting high-income earners only”.
Crisp stressed that the removal of tax credits “clearly cannot all happen at once but it can happen systematically”.
Removing medical tax credits as well as tax relief for retirement annuity contributions have been the target of NGOs such as the Institute for Economic Justice, which argues that removing this benefit for high- and middle-income earners would raise more revenue to provide services for the poor.
But care has to be taken about fiddling with the tax system. The Treasury is involved in the discussions with the health department as it is the custodian of the country’s tax laws. It is in a closed period ahead of the tabling of the medium-term budget policy statement next month, so was not available to comment on Crisp’s remarks.
Care, too, has to be taken about overtaxing the already heavily taxed rich and middle-income earners. Personal income tax contributes a greater proportion of GDP in SA than in many developing countries and even some developed ones. There is already taxpayer dissatisfaction that their taxes do not translate into an acceptable level of social services by the government.
While there is always the temptation to tax high-income earners more and more, there is the danger that adding to their tax burden will lead to more noncompliance. The Treasury seems cognisant of the fact that it has reached the limit of taxing personal income taxpayers.
One would have to examine the slice that high-income earners take of the total medical tax credit pie to determine whether such a measure would render a significant amount for NHI implementation.
According to official figures, of the R25.3bn in assessed medical tax credits allowed for 3-million taxpayers in 2023, R2.8bn was collected from the 281,315 taxpayers earning between R1m and R5m and over R5m. An amount of R2bn was also allowed for the 225,935 taxpayers earning between R750,000 and R1m.
On the other hand the imposition of thresholds might be intended not so much to generate additional revenue but a symbolic gesture of what lies in store for taxpayers.
As the Board of Healthcare Funders points out, the view that tax credits are a subsidy for the rich is misleading. It says close to 67% of medical scheme members come from previously disadvantaged backgrounds and many are lower- or middle-income earners who rely on these credits to afford healthcare cover.
In these circumstances, we urge caution. There is too much uncertainty over the implementation of NHI to rush changes to the tax system.
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