Now that President Cyril Ramaphosa has signed the National Health Insurance (NHI) Bill into law, the next probable step will be how to fund the NHI, which could spell trouble for South African taxpayers.
According to the National Department of Health, the NHI will be a financing system that will provide affordable healthcare for all South Africans.
All signs are pointing to a possible increase in taxes to fund the new NHI Bill.
Riaan Grobler, head of advisory services at Everest Wealth said that it is almost inevitable that government will increase in taxes to fund the NHI.
“The NHI will require huge sources of funding to make it a reality and in our present fiscal landscape financing the NHI through conventional means is not possible. Taxes would need to be increased to fund the NHI, whilst tax revenues are dwindling,” Grobler said.
Jurgen Eckmann, Wealth Manager at Consult by Momentum, who agrees with Grobler, said: “The easiest route for government to fund any initiative is to raise taxes - whether it be by raising VAT or increasing personal income tax and/or corporate income tax.”
According to Grobler, it has already been calculated that huge increases would be needed to fund the NHI through tax.
Grobler said that Clause 49 of the NHI Bill outlines the funding mechanisms for the NHI including a triple tax which is general tax revenue, a payroll tax and a surcharge on personal income tax.
There is also the possibility of a hike in VAT.
Eckmann said that discussions about the NHI should also include more palatable funding mechanisms, such as a 100% tax deduction (or close to it) of contributions into the NHI fund.
“This would effectively allow every taxpaying citizen to benefit from a tax perspective and grow the NHI fund simultaneously. which is a win-win scenario for both the NHI and SA citizens,” Eckmann said.
“South Africans appreciate these tax benefits and make use of them, which will ultimately help propel the acceptance and growth of the NHI.”
According to Grobler, another route that government may go down to fund the NHI is to cut medical aid tax credits.
“For now medical scheme tax credits remain unchanged with no provision made for inflation but the Department of Health has said that medical aid tax credits will be eliminated to help fund the NHI,” Grobler said.
However, Eckmann has a different view on the possibility of medical aid tax credits being cut.
“I don't think that these tax credits can be taken away from private and government healthcare members until we see a major shift of government and citizen funding into the NHI,” Eckmann said.
Eckmann said that removing the tax benefit away from private healthcare contributions before the benefits of the NHI are seen would be detrimental to the current private healthcare system.
What impact will have an increase in taxes have on financially stretched consumers?
According to Grobler, an increase in taxes will push consumers to the breaking point in the midst of high interest rates, high fuel prices and sharp price increases in other expenses such as transport, electricity and food.
“Many taxpayers are also in effect paying double as they have to obtain private services because the government does not provide the services for which tax money should be used. These include privatised security services and privatised medical services,” Grobler said.
Grobler said that South Africa already boasts one of the highest rates of personal income tax in the world.
“Further increases in tax will instead result in more people leaving the country. Presumably the implementation of the NHI will also lead to an exodus of expertise, which will obviously reduce South Africa's tax base even further,” Grobler said.
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