Every South African worker will pay a tax of R18,780 per year to fund NHI 

Implementing the National Health Insurance (NHI) Bill would require over R200 billion in funding on top of the Department of Health’s annual budget. It translates into a tax of R1,565 per month for every worker in South Africa.

This is feedback from FTI Consulting, which outlined the NHI’s potential cost and how it could be funded. 

As South Africans wait for President Cyril Ramaphosa to sign the NHI Bill into law, finance experts have warned that the scheme is not economically viable as it requires substantial funding sources.

“While everybody agrees that the country’s healthcare system requires reform and that this should provide access to universal health coverage, the NHI Bill, in its current form, is not economically viable for South Africa,” FTI said.

“The Department of Health, in its 2017 White Paper on the NHI and the NHI Bill, has flagged sources such as VAT, personal income tax and payroll taxes for raising additional funding.”

A presentation by the Department of Health indicated that in addition to public funds that can be allocated to an NHI Fund, an additional R200 billion will be raised. 

FTI clarified that the additional tax amount indicated by the government is not the total cost of the NHI, as it will probably need much more to implement fully. 

For context, R200 billion equals –

• 12.8% of South Africa’s current gross tax revenue
• 36.1% of personal income tax
• 62.4% of corporate income tax
• 51.2% of VAT

FTI pointed out that any funding must be sourced from taxes. The government has already confirmed that taxpayers would be footing the bill for the scheme.

However, any tax changes would require the National Treasury to propose a Money Bill. The passing of the NHI Bill, and even signing it into law, does not change any taxes.

NHI Deputy Director General Nicholas Crisp explained the government’s plan to fund the new health financing system.

“When we come to the contributions made in the private sector, the only way to move that money into the NHI fund is through taxes,” he said.

“Whether that is through VAT or other taxes is a matter for the National Treasury and the money bill, which will come later.”

Crisp added that the NHI Bill creates alternative mechanisms that do not currently exist, like a payroll tax.

It echoes the view of Health Minister Joe Phaahla, who said taxpayers would be footing the bill for NHI.

To raise R200 billion in the current fiscally constrained environment – and assuming that the number of taxpayers and their spending remains constant – will require a

• VAT increase from 15% to 21.5%
• Personal income tax rates increase by 31% across the board
• A payroll tax on those employed in the formal, non-agricultural sector of an estimated R1,565 per month

“These substantial tax increases will need to be implemented in an already tough economic environment,” the group said.

Considering South Africa’s tough economic conditions, these additional taxes will cause significant damage and hamper growth.

NHI’s uncertain future

Efficient Group chief economist Dawie Roodt said the government’s plan to implement National Health Insurance in South Africa is a dream and will never happen.

He said the government has mentioned the possibility of raising taxes to fund the NHI, but this is unlikely to work considering South Africa’s already over-burdened tax base.

Roodt said the NHI’s second biggest challenge is the government’s own inefficiency. The government is generally incapable of getting things done – regardless of whether they are good or bad for the country.

In this case, the government’s inefficiency means the potentially harmful NHI will also never actualise.

In addition, Roodt said that even if the President signs the Bill into law, it will face several lawsuits and be tied up in court for years to come.

“Don’t be worried – NHI is just a dream,” Roodt reassured.

Another critic of the National Health Insurance Bill in its current form is Wits School of Governance Professor Alex van den Heever.

He said there is no rationale for South Africa to implement the NHI Bill as it threatens the public and private healthcare systems. 

Van den Heever added that the NHI will disrupt healthcare provision in South Africa with potentially devastating consequences. 

The Bill seeks to collapse the provincial healthcare system and centralise it in a national institution that does not exist yet while collapsing private healthcare funding. 

“You are disturbing the entire current healthcare system and attempting to create a new, third system which you claim will be better. There is no rationale for that kind of move. There is no real reason for this,” he said.

“The concern is that the real reason for this is to consolidate power in one entity that will result, in its ultimate form, in R600 billion being under the control of the Health Minister. That is just wrong.” 

“It is the design that has collapsed pretty much everything that we have in the state at the moment.”

He clarified that he is not against the concept of NHI and enabling everyone to have access to quality healthcare but is against the current form of the NHI.