The Treasury is investigating the implications of limiting medical tax credits, it confirmed on Monday.
In a brief response to Business Day’s questions, it said it had “had engagements with the health department”, but Finance Minister Enoch Godongwana had not made any announcements or stated any policy position on the issue.
“There are a number of potential implications if medical tax credits were reduced or removed, and these are being investigated internally,” it said.
Scrapping medical tax credits is one of the proposed mechanisms for raising funds for NHI and dates back to the then-ANC government’s first policy paper on NHI, published in 2011. The issue has shot to the fore after two presentations to parliament last month in which the health department flighted its proposals to scrap these credits, starting with high-income earners. Last week it indicated phasing out medical tax credits could begin as early as April next year.
The Treasury drew attention to the fact that it had not increased medical tax credits in line with inflation in recent years.
The savings had been used to bolster the health department’s expenditure on preparation for NHI, but that had been done indirectly through the budget process rather than explicitly ring-fencing the savings for that purpose, it said.
Medical tax credits are designed to ensure all eligible beneficiaries receive the same tax relief regardless of their income. They include a tax credit for medical scheme contributions, currently set at R364 a month for the first two members and R246 a month for each additional dependant, and a medical expenses tax credit for qualifying out-of-pocket healthcare expenditure.
The government provided R30.4bn in tax credits to medical scheme members in 2022/2023, and a further R9bn in tax credits for qualifying out-of-pocket healthcare expenditure, Treasury documents show.
The health department’s deputy director general for NHI, Nicholas Crisp, said last week that the initial target would be people earning more than R750,000 a year. His presentation to MPs suggests that phasing out medical tax credits would shift R11bn to NHI in the 2026/27 financial year and R34bn a year after that.
Critics of the plan to phase out medical tax credits say it will disproportionately affect lower-income households, older people and individuals with disabilities. The Board of Healthcare Funders, an industry association for medical schemes, has previously warned that scrapping the tax credits may render medical scheme membership unaffordable to lower-income members and force them to turn to the state — with costs that exceed the value of the tax credits they lost.
