IRR asks: As taxpayers disappear, how will we pay for NHI?

The ANC would like to see a National Health Insurance (NHI) scheme implemented to level the playing fields between state and private healthcare and create wider access to high quality medical provision. The state healthcare system made international television headlines this week, with Eastern Cape hospitals revealed as dirty, in disrepair and staffed by demoralised and overworked doctors and nurses. There’s a lot of work to be done if the country is to switch people over to a state-run system that is fit for purpose. But, as the IRR, a thinktank, asks: where will the money come from to develop a world-class public health service? It notes that before Covid-19 containment wiped out jobs and businesses, and along with that tax revenues, there were already only at best 700,000 individuals contributing to state coffers. This week, a multi-university research consortium shared that 3m jobs were lost in April alone, and in that same month 1.5m employed people got no pay. Many others have had their salaries slashed by employers who are struggling to keep businesses afloat. – Jackie Cameron

Government must tell us what the NHI will cost, and where the money will come from – IRR

It is deeply worrying that, with South Africa facing a debt crisis, the government talks up its National Health Insurance (NHI) proposal as the answer to ailing healthcare in the country, but remains silent on the multi-billion rand cost implications.

In the light of President Cyril Ramaphosa’s approving remarks on Sunday that NHI would deliver quality healthcare to all, just how the scheme will be paid for requires urgent scrutiny.

The 2019 NHI Bill tellingly omits details on what NHI will cost. The 2017 white paper put the scheme’s costs at its intended launch in 2025 at R256bn a year (in 2010 prices). This figure is now a number of years out of date, and was a ‘thumbsuck’ from the start. The white paper also suggested that the government would need an extra R80bn in revenue in 2025 to implement the NHI – and that this additional sum could be garnered by hiking the VAT rate, increasing personal income tax, and/or introducing a payroll tax.

IRR analysis shows, however, that the NHI is more likely to cost around R700bn a year when it becomes fully operational in 2026 (as the government envisages). Major tax hikes will be needed to generate this amount. These increased taxes will be depicted as vital to the NHI, but the extra revenue generated is unlikely to be ring-fenced for NHI purposes. Instead, it will probably be used (like the ‘sugar’ tax, for instance) to help fund government spending on such items as the public service wage bill and bailouts for failing SOEs.

The increased tax burden will fall particularly heavily on the 700 000-odd individual taxpayers who currently pay about two thirds of all personal income tax (and a hefty chunk of VAT besides). If a third of those taxpayers were to emigrate in the face of increased taxes and reduced health services, the impact on revenues – and hence on all government spending – would be severe.

Read also: NHI a vast cost to taxpayers, will undermine healthcare system – IRR

Like his predecessor, Health Minister Zweli Mkhize has repeatedly shrugged off the key question of what the NHI is likely to cost. Instead, he takes the view that “nothing should stand between us and the NHI – not even the cost”. This refusal to deal with costs and affordability is simply irresponsible. This is especially so when both the National Treasury and the Davis Tax Committee have warned that the NHI is ‘unaffordable’ and ‘unsustainable’.

Earlier this week, IRR deputy head of policy research Hermann Pretorius warned that, far from being a cure-all, NHI “is likely to be worse than the disease it is trying to cure: too many South Africans not having access to quality healthcare”.

Said Pretorius: “The NHI is a fundamentally dangerous policy. It promises improvements in healthcare for the most vulnerable, but ignores the enormous failures of healthcare already under government control. This has been further illuminated by the deeply worrying failures of NHI pilot projects. Beyond the unattainably high expectations created by President Ramaphosa and his government, and the many substantial built-in weaknesses in the scheme, the NHI will also destroy the private healthcare system – the very system that has shown itself during the Covid-19 pandemic to be the most reliable source of care for South Africans needing medical help.

“On top of these concerns, pressing questions about the affordability of NHI and its cost implications for the government and for taxpayers remain unanswered. This is not good enough and South Africans will not accept it. The government must answer two simple questions: what will the NHI cost, and where will the money come from?”

  • Hermann Pretorius is Deputy Head of Policy Research at the IRR.
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