No need to worry about the NHI – for now 

There is no need for South African taxpayers to worry about tax increases associated with the implementation of the National Health Insurance (NHI) scheme, as the government does not have the ability to increase taxes, and it will take years to implement. 

However, if a sustainable funding model for the NHI cannot be found before it is fully implemented, the government would be forced to significantly raise taxes to fund the scheme. 

This is feedback from Nedbank economist Isaac Matshego, who outlined what the bank expects from Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement (MTBPS) next week. 

Matshego explained that the MTBPS is taking place in a much better macroeconomic environment than in previous years. 

This is largely due to load-shedding seemingly coming to an end, the formation of the Government of National Unity (GNU), and optimism surrounding the country’s economy. 

However, this does not mean Godognwana has the freedom to significantly increase government spending as the state’s finances remain in a precarious position. 

It also means that he cannot raise taxes in any meaningful way, Matshego said. South Africa’s small tax base and poor economic performance mean that any increase in taxes is likely to result in reduced collection. 

Matshego explained that this has been the story of the past decade, where taxes were raised in an economy that was growing at less than 1%. 

Apart from a commodity boom in 2021/22 and increased compliance due to a much-improved SARS in 2022/23, tax revenue actually declined through the past decade. 

This significantly constrains Godongwana’s ability to accommodate the government’s ambitious spending programmes and any potential future bailouts of state-owned enterprises. 

The counterproductive effect of increased taxes in a weak economy is shown in the graph below. 

As a result, Matshego does not expect any significant funding for the NHI in the years to come and said that Godongwana has been explicit in saying there is no money for it right now. 

In addition to funding limitations, the NHI will also take years to implement. The scheme’s implementation will most likely occur in phases and require significant adjustments to ensure it is constitutional and financially viable. 

No money bill has yet been presented by the National Treasury regarding how the scheme can be funded, but it is clear that tax increases would be needed. 

The Department of Health estimates it would need around R200 billion in additional funding to implement the NHI in its current form. 

According to Discovery calculations, this would require a 31% increase in personal income tax, a 6.5% increase in VAT, or a tenfold increase in payroll taxes. 

“That would wreck the economy and does not do enough for anyone. You need more funding,” Discovery CEO Adrian Gore said.

“It’s not a healthcare issue – it creates a real economic problem. I don’t think people would bear paying 30% more taxes and having 70% less healthcare.” 

However, if the NHI is to broaden the range of services it covers, it would need billions more in funding. 

The government’s current estimate is based on the level of care provided by the state, which is far below that of the private sector. 

Momentum Health estimated the private sector spends an average of R1,750 a month, or R21,000 a year, on 9 million medical scheme beneficiaries. 

If the NHI plans to offer the same care to all 63 million South Africans, this would translate into an annual cost of R1.3 trillion. 

Momentum said that while there would be savings through the use of medical aid tax credits and enhanced scale, this would only bring the cost down to R900 billion per year. 

Minus the existing budget for healthcare of R272 billion, this would require R628 billion in additional funding for the NHI.

This is far higher than the government’s initial estimate of R200 billion. 

South Africa has 14,667,133 registered taxpayers. The additional NHI costs mean each taxpayer will have to pay R42,817 per year.

If the payment is limited to personal income taxpayers, the additional tax burden on these individuals will be R88,176 per year.