Payroll tax to fund NHI misguided

Professor Alex van den Heever said the government’s plan to fund National Health Insurance (NHI) through a payroll tax is misguided.

An NHI factsheet produced by the Department of Health and the Presidency said the scheme would be funded through a payroll tax and additional personal income taxes.

News24 reported that employers and employees would contribute to the payroll tax in the same way that contributions to the Unemployment Insurance Fund (UIF) are structured.

Van den Heever slated this proposal, saying those who proposed it are not qualified to comment on financial matters like funding the NHI.

“They talk of introducing payroll taxes. You don’t introduce payroll taxes for a general government allocation,” he explained.

“Payroll taxes are for contributory systems where you get a specific benefit or entitlement for what you contribute.”

He said using the term “payroll taxes” in relation to funding NHI does not make sense.

He added that the discussions about increasing taxes and introducing a new payroll tax indicate that the government does not know how the NHI will be funded.

“They are an incredibly naive set of fiscal proposals that you cannot even consider implementing,” he said.

“When you look at the proposals from the financial side, they are incoherent from a public finance perspective.”

There is no possible way that the Finance Minister will consider introducing them because it will be suicidal for the government.

Van den Heever explained that increasing taxes at this point is unfeasible because the tax base is already overburdened.

“When you increase taxes beyond a certain point, you get a reduction in how many taxes you collect,” he said.

“It is very dangerous to overstress your tax bases. We are hitting the limit on the amount you can fund the government and the public health system from taxes.”

Huge tax increases needed to fund NHI

Van den Heever’s warning echoes warnings from Solidarity Research Institute head Connie Mulder and Discovery Health CEO Ryan Noach.

Mulder said trying to fund NHI through additional taxes is unfeasible because of the tremendous amount of money needed.

“We are talking about massive increases in taxation to fund this, which will crush South Africa’s economic outlook,” Mulder said. “It is completely unaffordable and unnecessary.”

Noach said it is naive for the Department of Health to assume that medical aid contributions will be redirected into a national health insurance scheme.

He explained the NHI scheme would force South African taxpayers to pay much higher taxes but cut their healthcare entitlement by 72%, causing a tax revolt.

It is unclear how NHI will be funded, but even using a combination of VAT, personal income taxes, company taxes, and payroll taxes are unfeasible.

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.