Tax increases in South Africa for NHI still on the table

Discussions on funding approaches for National Health Insurance (NHI) are ongoing within the government, and tax hikes have not been ruled out.

While immediate financial pressure to fund the scheme is low, significant additional funding will be required for full implementation in a few years.

Finance Minister Enoch Godongwana revealed this in response to a Parliamentary question from Action SA MP Alan Beesley.

The NHI is a centralised national insurance fund from which the government purchases healthcare services from public and private providers.

All eligible South African residents, as defined in the NHI Act, will be able to visit these providers whenever they need healthcare without any payment.

In its current form, the Act would also forbid private medical aid providers from covering healthcare procedures that the NHI provides for. 

In his question to the minister, Beesley pointed out that the Medium-Term Budget Policy Statement (MTBPS) in October did not include any commitments for funding the NHI.

Therefore, he asked the minister for full details of the National Treasury’s plans to secure the estimated additional R628 billion per year required to effectively implement the NHI.

Godongwana explained that there are currently baseline allocations in the direct NHI grant, the indirect NHI grant and the Department of Health to fund some of the preparatory activities.

“These funds historically have tended to be underspent, so there is no immediate financial pressure,” he said. 

“The baselines for the grants, which primarily fund NHI preparatory activities, have been maintained without any reductions or additions.” 

He said the preliminary allocations for the health systems and health facility revitalisation components, within the indirect NHI grant, are estimated at R7.3 billion over the 2025 MTEF. 

In addition, he explained that since the NHI Act and regulations have not been promulgated and released yet, it will take around two years to list the NHI Fund as a schedule 3A public entity.

The 2024 MTBPS revealed that the government is already spending R893 billion on health over the next three years. 

“Against this backdrop, there have been various cost estimates for NHI. For example, the green paper suggests a shortfall of around R74 billion to R106 billion in real 2010 rand,” the minister said.

“Some work done in 2019 suggested that a limited set of startup interventions would cost approximately R55 billion by 2030.”

“Practically and more realistically, it may take some years before we reach full implementation because progress will strictly be contingent on the fiscal situation, and a lot of progress is still required in developing strategic purchasing mechanisms.”

Godongwana said the most likely outcomes are the redirection of existing funds like conditional grants and a gradual, slow increase in funding, depending on national affordability. 

“Complex systems and mechanisms would first need to be developed within the fund to ensure a smooth transition, which will likely take several years,” he said.

“Essentially, there are no immediate or short-term fiscal implications for the 2025 budget cycle, which is why no significant increases are shown in the 2024 MTBPS.” 

“The Department’s budget bids for the 2025/26 Medium Term Expenditure Framework largely do not include NHI, except for some small aspects of the expansion of the chronic disease dispensing programme.”

Godongwana explained that, given the potential timelines for additional expenditure, there have been no announcements of increases in taxes or levies to specifically fund NHI financial requirements. 

“The need for additional tax measures to fund NHI will be evaluated as the reform progresses. The Minister of Finance is exclusively mandated by legislation to pronounce on tax matters,” he said.

A Daily Investor analysis recently revealed that each South African taxpayer would have to pay an additional R43,000 in tax every year to fund the government’s NHI scheme.

However, private companies and their research have indicated that it will likely cost significantly more, depending on the quality of care provided under the scheme. 

There have been varying estimates as to what the NHI would cost South Africa, with the Department of Health saying it would cost around R200 billion a year. 

However, private companies and their research have indicated that it will likely cost significantly more, depending on the quality of care provided under the scheme. 

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

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 cost R1.3 trillion annually. 

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.

Therefore, considering South Africa has 14,667,133 registered taxpayers, the additional NHI costs mean each taxpayer would need to pay R42,817 per year.