Discovery Health CEO Ryan Noach said the government’s National Health Insurance (NHI) scheme would force South African taxpayers to pay much higher taxes but cut their healthcare entitlement by 72%, causing a tax revolt.
South Africa’s National Assembly recently passed the NHI Bill, but there are no details on how the insurance scheme will be funded.
NHI deputy director general Nicholas Crisp said the only way to move medical aid contributions into the NHI fund is through taxes.
“Whether that is through VAT or other taxes is a matter for National Treasury and the money bill, which will come later,” he said.
However, many experts, including the Solidarity Research Institute and Discovery Health, said the huge tax increases needed to fund NHI is unfeasible.
Noach told Biznews TV it is difficult to estimate how much NHI will cost South African taxpayers as no accurate figures are available.
“Treasury has not calculated how much the NHI will cost. The only number in the public domain is R200 billion, provided by the Department of Health,” he said. “In reality, it is double that.”
Discovery’s estimates align with those from Intellidex’s Peter Attard Montalto, who put the NHI cost at between R300 billion and R460 billion a year.
However, to make the tax calculations as conservative as possible, Discovery Health used the R200 billion as a guideline for the tax increases needed to fund it.
The research, led by Professor Roseanne Harris, said the increases below are needed to raise an additional R200 billion for NHI.
• You will need to increase VAT from 15% to 21.5%.
• You will need to increase personal income taxes by 32%.
• You must implement a payroll tax equivalent to ten times their current UIF contributions.
It is also possible to use a combination of VAT, personal income taxes, company taxes, and payroll taxes to fund NHI. However, the effect is similar.
“These big tax increases will only get the government to around 50% of what the NHI requires,” Noach said.
“These three scenarios are entirely unfeasible. You don’t need to understand that there will be a tax revolt. You will never raise it.”
Small tax base in South Africa
South Africa has a unique situation where a very small tax base funds nearly all government expenditures.
“The taxpaying public is around 5.5 million people. These taxpayers and their beneficiaries are in medical schemes today,” Noach said.
This means that the tax base of 5.5 million people is paying for medical schemes and receiving private healthcare.
“You have that group of people funding the public healthcare system. They are accountable for around 80% of the public healthcare funding,” he said.
Notably, they pay for their medical aid and private healthcare with their after-tax disposable income.
The government is now proposing that their taxes will rise significantly but that their entitlement to healthcare will drop by 72%. “It doesn’t work,” he said.
Besides the funding challenges, many experts warn that the NHI is already chasing medical professionals out of the country.
Profmed CEO Craig Comrie said that, if fully implemented, the NHI Bill would effectively “nationalise” medical professionals and cause many to leave the country.
Noach and the South African Medical Association have already previously warned that the NHI risks chasing doctors and other healthcare professionals out of the country.
“There is a real short to medium-term risk to healthcare professionals. We are seeing early signs of that,” Noach said. “The doctors are very concerned, along with other healthcare professionals.”