Finance

NHI D-Day here soon

The National Health Insurance (NHI) scheme could receive its first budget allocation after it has been promulgated into law in the Finance Minister’s 2025 Budget Speech on 21 February. 

This is feedback from the head of fixed-income at Melville Douglas, Mzimasi Mabece, who outlined what the boutique asset manager expects for the upcoming Budget Speech. 

South Africa’s economic climate has changed significantly for the better since the last Budget Speech in 2024. 

Back then, there were few reasons to be optimistic about the country’s trajectory, with load-shedding at record levels and a looming national election. 

Twelve months later, load-shedding appears to largely be a thing of the past, and investors have positively received the Government of National Unity (GNU).

However, while the economic climate has changed, Finance Minister Enoch Godongwana is largely expected to stay the course concerning the country’s finances. 

“Given all of this, we expect Finance Minister Enoch Godongwana to be consistent and expand on the themes he highlighted in October when he delivers the budget speech at the end of the month,” Mabece said. 

“This is something which investors and business will welcome and which ratings agencies will look upon favourably later in the year.”

However, one major change is that the NHI Act is now law and will likely receive its first budget allocation on 21 February. 

Mabece said research currently points to this allocation being as high as 1% of the entire national health budget. 

This does not mean the NHI will be implemented, as it will take hundreds of billions of rands and nearly a decade. 

An allocation as part of the national health budget will not require additional revenue from a new tax or an increase in existing taxes. 

It will, however, be an important step on the journey towards NHI in South Africa, which will require its own funding mechanism or significantly increased taxes. 

Aaron Motsoaledi
Health Minister Aaron Motsoaledi

This assessment is similar to that of Nedbank economist Isaac Matshego, who said that there is no need for South African taxpayers to worry about tax increases associated with the NHI. 

Matshego said the government simply does not have the ability to increase taxes, and it will take years to implement.

South Africa’s small tax base and poor economic performance mean that any increase in taxes is likely to result in reduced collection. 

Matshego explained that this has been the story of the past decade, where taxes were raised in an economy that was growing at less than 1%.

This significantly constrains Godongwana’s ability to accommodate the government’s ambitious spending programmes and any potential future bailouts of state-owned enterprises.

Furthermore, the NHI will take years to implement and will most likely be enacted in phases. It will also require major adjustments to ensure it is constitutional and financially viable. 

If a sustainable funding model for the NHI cannot be found before it is fully implemented, the government would be forced to significantly raise taxes to fund the scheme.

No money bill has yet been presented by the National Treasury regarding how the scheme can be funded, but it is clear that tax increases would be needed. 

The Department of Health estimates it would need around R200 billion in additional funding to implement the NHI in its current form.

According to Discovery calculations, this would require a 31% increase in personal income tax, a 6.5% increase in VAT, or a tenfold increase in payroll taxes.

However, the Health Department’s estimates exclude services like primary care, extended chronic care, maternity care, and Prescribed Minimum Benefits (PMBs).

The cost will increase further if the NHI covers extended hospital stays and specialist procedures.

Momentum Health estimated the private sector spends an average of R1,750 a month, or R21,000 a year, on each of the country’s 9 million medical scheme beneficiaries. 

If the NHI plans to offer the same care to all 63 million South Africans, this would translate into a cost of R1.3 trillion annually. 

Momentum said that while there would be savings through the use of medical aid tax credits and enhanced scale, this would only bring the cost down to R900 billion per year. 

With the existing healthcare budget of R272 billion deducted, this would require R628 billion in additional funding for the NHI – far higher than the government’s initial estimate of R200 billion.

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