Will Ramaphosa’s support for NHI start cooling ‘Ramaphoria’?

JOHANNESBURG — There are many dangers in the road ahead for new SA president, Cyril Ramaphosa. But one of the chief concerns revolves around the implementation and costing of National Health Insurance. If done incorrectly, the risks to the fiscus and society could be huge. – Gareth van Zyl

“It’s odd. People – especially the media – have been going berserk over Cyril Ramaphosa, as if he’s some sort of saviour.” More magic available at jerm.co.za.

By Dr Anthea Jeffery*

President Cyril Ramaphosa struck a jarring note, in his much-acclaimed SONA speech, with his promise of a bill this year to introduce the National Health Insurance (NHI) system. The 2018 Budget also sets aside R4.2bn for the NHI, and helps pave the way for it by limiting the tax credits that make medical scheme membership affordable to millions of South Africans.

Ramaphosa’s determination to press ahead with the NHI ignores what the Davis Tax Committee (DTC) said last year, after investigating its funding. According to the DTC, the NHI ‘is unlikely to be sustainable unless there is sustained economic growth’.

Dr. Anthea Jeffery is Head of Policy Research at the IRR and author of Patents and Prosperity: Invention + Investment = Growth + Jobs, published this week by the IRR and available on the IRR website.
Dr. Anthea Jeffery

The DTC fudged what level of growth would be required. However, this would have to rise to at least the 3.5% of GDP mooted in a green paper on the NHI in 2011 and the final NHI white paper in June 2017.

Yet South Africa has little prospect of reaching even this relatively low level of economic growth. Neither the SONA nor last week’s Budget, despite all their ‘new dawn’ rhetoric, does anything much to reduce the key barriers to growth.

Instead, many of those barriers are to be raised still higher. A minimum wage of some R3 500 a month is due to take effect in May 2018, despite Treasury warnings that this could cost some 715 000 jobs and reduce GDP by 2.1%.

The infrastructure expenditure needed for faster growth is now to be cut back in favour of more consumption spending. Public sector wages are set to rise by 7.3% a year over the next three years, which is well above the current inflation rate of 4.4%. Excessive spending on an extraordinarily inefficient public service will thus persist, despite the urgent need to contain the public sector wage bill.

The most important educational requirement – the need to teach children reading, writing and ‘rithmetic at the foundation stage – is effectively being overlooked. Instead, some R57bn over three years is being put into an ill-considered plan to provide free tertiary training to thousands of school leavers. Yet many of them are poorly prepared for university education and will, in any event, battle to find jobs in this low-growth economy.

Moreover, despite the tax increases and spending cuts announced in the Budget, the country still faces the risk of credit ratings downgrades that could trigger a massive sell-off from the bond market and prompt a significant deterioration in the rand.

Post-Budget comments by international ratings agencies suggest that they still have doubts as to whether the government will be able to reduce its spending, revive floundering SOEs, or generate the growth required to counter mounting public debt.  

Cyril Ramaphosa speaks during the 54th national conference of the ANC in Johannesburg on December 18, 2017. Photographer: Waldo Swiegers/Bloomberg

The agencies’ confidence in our capacity to avoid a debt trap will be further eroded if the VAT increase – which, given the ANC’s appalling mismanagement of the economy, now offers the best mechanism to raise significant amounts of revenue with immediate effect – is derailed by trade unions and opposition parties. If a downgrade then follows, this will hurt the poor far more than the VAT increase, which at least will not affect the prices of zero-rated basic foods and fuel.

A decision by Ramaphosa to proceed with the NHI could also help trigger a downgrade, as Fitch, for one, has warned.

The government still refuses to carry out a proper NHI costing. Instead, it insists that focusing on ‘what the NHI will cost is the wrong approach’, as it is likely to ‘require an endless cycle of revisions and attempts to dream up new revenue sources’. Yet the likely need to keep ‘dreaming up’ ever more revenue is precisely the risk the NHI poses.

NHI costs will clearly dwarf the R57bn already rashly promised for free tertiary training over three years. Realistic estimates – rather than the fairytale figure of some R250bn the government conjured up in 2010 and has yet to revise – put the likely costs of the NHI at R665bn in 2025 (13% of GDP), rising to R890bn in 2030, R1 190bn in 2035, and R1 260bn in 2040.

Such sums are entirely unaffordable, especially with state debt already exceeding R2.5 trillion and likely to rise, even on the Budget’s optimistic assumptions, to close on R3.3 trillion (some 56% of GDP) by 2020.

Worse still is the catastrophic damage to health care the NHI is likely to cause. Many nurses, doctors, and specialists may emigrate once they find themselves solely dependent on an inefficient state bureaucracy to set and pay their fees. Supplies of medicines and other essentials will also wither if state-set prices are too low and providers often remain unpaid.

Many middle class people – whose skills and tax contributions are vital to the economy – could also emigrate once their medical schemes cease to function and they have to wait months (or years) for treatment under the NHI. The poor, as ever, will suffer the most as standards of health care go down and waiting times go up.

So great is the country’s relief at being rid of Jacob Zuma that enthusiasm for his successor – ‘Ramathusiasm’ is the graphic term for this – still seems as strong as ever. Yet already the new president has made major policy mistakes.

“The EFF are still threatening to colonise farms”. More brilliant cartoon work available at jerm.co.za.

The worst of these is his support for expropriation without compensation (EWC). This policy, irrespective of what safeguards are promised, will cripple investment, growth, and employment and propel the country towards the misery experienced in Zimbabwe and Venezuela.

Ramaphosa’s support for the NHI is almost as ill-conceived as his endorsement of EWC. Moreover, even the most upbeat of Ramathusiasts must question why an astute businessman, as Ramaphosa is often said to be, would embark on a measure without first counting its likely costs.

Ireland’s experience is instructive here. In 2011 Ireland announced plans for something similar to our NHI. In 2015, after examining the likely costs of the proposal, the Irish government realised that it was unaffordable and scrapped the idea. This was the sensible thing to do, yet South Africa – even with Ramaphosa at the helm – refuses to follow suit.

A proper costing of the NHI has long been promised but never provided. Drawing up and publicly releasing a convincing cost-benefit analysis is the least Ramaphosa must do before he proceeds any further with an NHI likely to turn health care into (yet another) failing state monopoly.

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