Free health care would be very expensive for tax payers – Solidarity

26 July 2018

The trade union Solidarity is seriously concerned about the tremendous negative impact the proposed National Health Insurance (NHI) will have on tax payers.

According to Morné Malan, a researcher at the Solidarity Research Institute, the government’s total tax income is currently just more than R1 Trillion of which more than a third would have to go to the NHI. Malan further said that it is improbable that the government will cut on expenditure elsewhere and therefore, it is very difficult to determine from where the additional money to fund the NHI will come.

It will take as much as 70% of personal income tax, or even as much as 99% of the income through value added tax (VAT) to provide for the deficit. Therefore, to continue with the same services which are currently funded by VAT, as well as provide for the shortfall regarding the NHI, VAT will effectively have to be doubled, which presumes that people’s spending patterns will stay the same, which will definitely not be the case.

Malan explained that according to the government’s own, very optimistic numbers, government spending on health care will have to increase with approximately 10,6% annually from 2019 until 2024/25. Given the current deficit in our budget, it is nearly impossible to determine where the additional funds will come from.

Solidarity is also concerned about the government’s naïve estimate on the scope and cost of the proposed project. According to Malan, the government base their numbers on the presumption that the economy will continuously grow at a rate of 3,5%, while South Africa is currently not even close to that growth rate. They further assume that the demand for health care in South Africa will experience the same increase experienced in other countries, such as Thailand, for example. The latter ignores the fact that we have an extraordinary high burden of disease in South Africa according to the World Health Organisation’s (WHO) Disability Adjusted Life Years method.

Malan argues that the proposed system will almost certainly cost much more than what the government’s initial estimates indicate. According to the government’s calculations in the white paper, the NHI will need approximately R256 billion by 2025, of which R72 billion will be a deficit on current government expenditure on healthcare. Malan explained further it is already difficult to imagine how the insurance would be funded and that the already over-taxed population will not be able to handle further increases. “What is even more worrying, is that the number for NHI funding is rather closer to R357 billion with a deficit of approximately R210 billion. It is simply madness to assume that this deficit can be eradicated by taxes,” Malan said.

According to Malan, the potential size of the NHI can be summarised as 1.2 times the size of total revenue presently generated from personal income tax, or even 1,5 times the income received by VAT. This means more than double these income sources of the government. Malan concluded by saying that it is simply not possible to fund the NHI within the current state of our economy, regardless of ideological wishful thinking.

Issued by Francois Redelinghuys, Spokesperson, Solidarity, 26 July 2018