Finance Minister Enoch Godongwana has expressed caution about the health department’s proposal to phase out medical scheme tax credits to help fund National Health Insurance (NHI).
The medical scheme industry has been urging the Treasury to state its position, after the health department told parliament that scrapping those credits could begin as early as next April, starting with high-income earners.
“My worry … is that if you look at who is paying our PIT (personal income tax), it’s the same group you want to take medical credits away from. It’s actually an attack on the middle class,” the minister told journalists shortly before tabling the medium-term budget policy statement (MTBPS) in parliament on Wednesday.
“I’m not saying we should not do medical tax credits, but once we do that we must present … the alternative,” he 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 2022/23, and a further R9bn in tax credits for qualifying out-of-pocket healthcare expenditure, according to the February Budget Review.
In the run-up to the MTBPS, SA’s two key medical scheme industry associations — the Board of Healthcare Funders and the Health Funders Association — had urged the finance minister to use the occasion to clarify the Treasury’s position on the future of medical tax credits. They argue that medical tax credits are a vital measure to help keep medical scheme membership affordable and reduce the load on state healthcare facilities.
The issue is under discussion with the health department, but the Treasury has yet to finalise its position, said its deputy director-general for tax and financial sector policy, Chris Axelson.
While the Treasury does not usually ring-fence revenue streams for specific programmes, the Treasury had previously “soft-earmarked” the savings achieved by freezing the medical tax credits and not increasing them in line with inflation for NHI, Axelson told Business Day.
The MTBPS allocates an additional R755m to health via the special appropriation bill tabled in parliament by Godongwana in September, of which R590.4m goes to provinces as conditional grants to fund HIV/Aids and tuberculosis programmes affected by US President Donald Trump’s withdrawal of funding provided via the President’s Emergency Plan for AIDS Relief (Pepfar). The SA Medical Research Council gets an extra R132m to counter the cuts to grants administered by the US National Institutes of Health, and an extra R32.1m is added to the NHI indirect grant to strengthen SA’s health system.
Consolidated health expenditure is set to grow by an average of 3.9% over the medium-term expenditure framework, rising from a revised estimate of R298.9bn in 2025/26 to R308.6bn in 2026/27, and then increasing to R322.4bn in 2027/28 and R335.5bn in the outer year.
The Treasury projects inflation will average 3.4% over the period, which means the health budget grows in real terms by just 0.5%.
More on the medium-term budget:
SA’s 3% inflation target sets sights on price stability and investor confidence
Treasury and Reserve Bank set new 3% inflation target
MTBPS reallocates modest fiscal room — who gains and who loses
Treasury lowers growth forecast with eye on protectionism
MTBPS shows marginal fiscal gains while debt costs weigh on outlook
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