NHI needs R296 billion more from South African taxpayers

The National Treasury will need an additional R295.93 billion to fund the government’s National Health Insurance (NHI) plan – a cost South Africa’s strained budget and taxpayers cannot afford.

This is according to a report released by the Solidarity Research Institute (SRI), which looked at the affordability of NHI in South Africa.

South Africa’s National Assembly passed the NHI Bill earlier this year, but there have been few details on how the insurance scheme will be funded.

The NHI Bill proposes converting the country’s current two-tier system into a single system that should provide all South Africans access to either public or private healthcare. 

The NHI scheme will bear the costs and enter into contracts with hospitals and other role-players.

According to the report, South Africa currently has a budget deficit of 4.2%. However, HSBC believes it will be 5.1%, and Moody’s predicts a 5.6% deficit due to lower-than-expected tax revenue and a higher-than-expected salary adjustment for public servants. 

2023’s budget deficit follows 14 years of successive budget deficits. 

“Such a state of affairs is totally unsustainable,” according to the report.

In addition, social services are responsible for more than one-third of state expenditure. 

“While social services are enormously important, they leave behind no physical infrastructure with tangible value,” the SRI said.

“This in itself is not sustainable, and the NHI, if implemented, will be yet another cost item in this category.”

In 2023, debt servicing costs will already take up R340.5 billion of the national budget. This is one of the most significant single items in the budget, absorbing just over 17% of state revenue.

The report stated that the norm for middle-income countries such as South Africa is to spend about 6% of GDP on healthcare. This includes spending by the state and the private sector. 

In South Africa, this was approximately 8.6% in 2020, which is high compared to other countries with an income per capita similar to South Africa’s. 

“The state usually budgets between 4% and 5% of GDP for health. For 2023, the proportion is a meagre 3.9%,” the SRI said.

“This indicates a budget that is under severe pressure.”

The report states that if NHI were to be implemented today, there would be a budget deficit of R181.95 billion. 

“The fact of a decrease from 2022’s assumed figure actually underlines the unaffordability of the NHI because it stems from the failure of the Treasury to properly adjust the health budget this year.” 

“Looking at 2026 – the year in which the NHI is supposed to be implemented – an enormous extra R295.93 billion will be required in order to balance the books.” 

With a total cost of R659.35 billion, healthcare would be the biggest item in the South African budget by far. 

“It is unheard of for a middle-income country, where spending on education usually enjoys the highest priority. While more affluent countries spend more on healthcare, social grants usually receive the highest priority, never health.”

The report found that R295.93 billion could theoretically be generated by abolishing the medical tax credit (about R30 billion) and levying the following taxes: 

• A 40% surcharge on income tax 
• Increasing VAT from 15% to 22%
• A payroll tax of 13.4%
• Increasing corporate income tax from 27% to 45% 
• A combination of these 

“In real terms, none of these is possible because the South African taxpayer is already overtaxed. These theoretical suggestions serve for illustration only and to demonstrate their absurdity.”

Discovery Health

The SRI’s findings align with those of Discovery Health CEO Ryan Noach, who told BizNews TV earlier this year that implementing the NHI Bill in its current form would cause a tax revolt.

Noach said 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.

• Increase VAT from 15% to 21.5%.
• Increase personal income taxes by 32%.
• 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.”