South Africa already wasting billions on NHI every year

Economist Dawie Roodt said South Africa is allocating around R20 billion a year in the government’s budget to National Health Insurance (NHI), which is essentially being wasted.

This is because, according to Roodt, NHI can never become a reality in South Africa, as the state simply lacks the money to implement it.

Speaking to Sakeliga, Roodt said he is concerned that billions of rands are already being spent on NHI every year.

“That money is not very well spent. I mean, that is money we could have spent somewhere else much better,” he said. 

“So, they’re going to keep on trying, but it’s not going to become a reality because we just do not have the money.”

Roodt’s belief that NHI will not be implemented in South Africa is based on the state’s limited funding resources and its lack of options to raise additional funds.

The NHI’s funding has been a sticking point since the legislation was signed into law in 2024, with the government yet to release a detailed Money Bill or similar funding plan for the policy.

Health Minister Aaron Motsoaledi has hinted at tax increases and said the scrapping of medical aid tax credits could be used to fund NHI in South Africa.

However, private health sector players have pointed out that this would still leave the state with only a portion of what it needs to fund a universal healthcare programme as ambitious as NHI.

Momentum Health Solutions has estimated that it would cost between R900 billion and R1.3 trillion per year for the NHI to provide each South African with the same quality of care received under the private health system.

This is significantly more than the government currently spends on healthcare in South Africa, with the 2025 National Budget only allocating R296.1 billion to health.

While scrapping medical aid tax credits would add around R33 billion a year to this budget, it still would not be enough to provide the same level of care to the entire South African population as the private sector currently provides.

Therefore, the only option really left is for the government to raise tax rates in South Africa. However, Roodt said this is also not a feasible funding plan for NHI.

South Africa cannot raise taxes

Roodt explained that the state’s options for raising additional revenue through tax increases are very limited, as South Africa is already over the Laffer Curve.

The Laffer Curve is an economic theory that shows the relationship between tax rates and tax revenue.

The theory posits that, above a certain point, higher tax rates will lead to lower tax revenue, rather than more, as people will increasingly try to avoid taxes or simply stop working altogether to avoid paying tax.

According to Roodt, South Africa has already surpassed this point when it comes to personal income tax, with many taxpayers already taking pains to minimise their tax burdens.

The Health Funders Association (HFA) has estimated that funding the NHI would require personal income taxes to increase by between 1.5 and 2.2 times the current rates.

This is something South Africa’s already overburdened taxpayer base can scarcely afford, with 

Similarly, South Africa cannot afford to increase corporate tax rates, as the country’s current rates are already considered uncompetitive globally. 

Therefore, raising taxes any higher could result in companies simply leaving the country for more business-friendly domiciles.

In addition, raising corporate tax rates will most likely see those higher costs be passed on to South African consumers, pressuring household budgets even further.

Raising the value-added tax (VAT) rate is an option, but South Africa’s budget debacle at the start of 2025 showed that this would also be a highly unpopular decision that is unlikely to pass Parliamentary muster.

Therefore, the state faces an uphill battle in trying to collect additional revenue to fund its ambitious NHI plans, with very few options left that would raise the amount needed.

The graph below shows the Laffer Curve, with Roodt arguing that South Africa has already passed the ‘revenue-maximising point’, entering the region of declining revenue with regard to personal income tax.