IRR: NHI a grave threat to South Africa’s fragile tax base

14 May 2024

The IRR warns that placing South Africa’s entire health care system under government control is likely to accelerate middle-class emigration, triggering a calamitous decline in tax revenue.

The Presidency announced on 13 May 2024 that President Cyril Ramaphosa would be signing the controversial National Health Insurance (NHI) Bill into law on Wednesday, 15 May.

Under the NHI system, South Africa’s entire health care system will be brought under the control of the government. This means that private health care, too, will in time be controlled by the government.

South Africans have seen what happens when the ANC controls critical institutions. They anticipate that health care will collapse, just as has happened with the supply of water and electricity, education, law enforcement and municipal services, to name some examples.

While middle-class citizens have been able to protect themselves from many of the worst consequences of ANC misgovernance by paying for functioning private services, they will not easily be able to avoid the harm a wholly state-controlled health system does to them and their families.

Having done the calculations, how will they respond and what will the impact be?

The South Africans most affected by the introduction of the NHI will be the approximately 1.9m taxpayers earning over R500,000 per year. It can safely be assumed that almost all of them are voluntarily paying for private health care in addition to the deficient public health care they are compelled to fund through their taxes.

These 1.9m taxpayers play a disproportionate role in funding the state. Together, they pay 76.6% of all personal income tax in South Africa, according to National Treasury estimates for 2024/25. The R565 billion they contribute makes up over a quarter − 27.7% − of the total revenue the government expects to collect in 2024/25. It also helps pay for social grants for the poor and a raft of other state-provided services.

As business owners, entrepreneurs or skilled employees, these valuable taxpayers play a key role in South Africa’s economy. Many of them have above-average work experience, job skills, education levels and business networks.

Those are precisely the attributes that give them the competitive edge in international job markets. To escape the harm they foresee from an ANC-controlled health system, they will be sharpening their pencils to apply for overseas jobs before the ink is dry on the NHI Bill.

The departure of those taxpayers will have dramatic effects on South Africa’s public finances.

If just half of these 1.9m individuals left the country, the South African fiscus would lose around 14% of its total revenue from the decline in personal income tax alone – probably more, because higher-income earners are more likely to leave. At the same time as suffering a steep decline in revenue, the fiscus would have to fund a health system costing in the hundreds of billions of rands, although the exact amount is not known yet.

But that is not all. Corporate income tax would also drop as some of the country’s most productive employees leave and companies are deprived of their skills. Value-added tax would similarly decline as the middle class and the wealthy emigrate and start spending their money outside the country.

Said John Endres, chief executive of the IRR: “The NHI concept is badly flawed and poses a grave threat to South Africa’s public finances and economy. That the Ramaphosa administration is now pushing ahead with it, while ignoring the constructive criticism and warnings it has received over recent years, is extremely concerning.

“The decision speaks to economic recklessness and a lack of foresight that will impose a high cost on South Africa. The IRR has written extensively about the threats posed by the NHI, including in parliamentary submissions that highlight the unconstitutional aspects of the Bill. We will continue opposing the NHI while defending the right of South Africans to choose the health care they want. Donors with an appetite for litigation are invited to get in touch with my office directly.”

Issued by Hermann Pretorius, IRR Head of Strategic Communications, 14 May 2024