R1,500 a month tax on everyone with a job in South Africa – funding the NHI

Research into the affordability of the NHI shows that every formally employed South African would need to fork over R1,500 a month through a payroll tax to meet the Department of Health’s funding estimations – failing which, a massive 22% VAT or 30%-plus income tax hike would have to cover it.

As South Africans wait for President Cyril Ramaphosa to sign the National Health Insurance (NHI) Bill into law, finance experts have reiterated the warning that the scheme – in its current form – is not economically viable and requires huge sources of funding to make it a reality.

Heading into budget week, finance experts at FTI Consulting have highlighted findings from their 2023 NHI Funding – Macro Implications report, which explores the various funding mechanisms required to get the universal healthcare plan off the ground.

“While everybody agrees that the country’s healthcare system requires reform and that this should provide access to universal health coverage, the NHI Bill, in its current form, is not economically viable for South Africa,” the group said.

“The Department of Health, in its 2017 White Paper on the NHI and the NHI Bill, has flagged sources such as VAT, personal income tax and payroll taxes for raising additional funding – and in a presentation it made in December 2022, said that it would need to raise an additional R200 billion per year to fund the NHI.”

While the R200 billion is an older estimation – and a conservative one, depending on who you ask – FTI pointed out that any funding would have to be sourced from taxes. The government itself has already confirmed that taxpayers would be footing the bill for the scheme.

However, any tax changes would require the National Treasury to propose a Money Bill, FTI said, adding that the passing of the NHI Bill, and even signing it into law, does not change any taxes.

As such, focus will be on National Treasury this week, to see if there are any indications of funding mechanisms in the near term.

Economists are split on this – with many saying that the Treasury is likely to give it a skip for now. However, there are views that, in an election year, it may prove too much of an ‘exciting’ prospect for voters to be completely ignored, with tax credits potentially on the line.

Nevertheless, the Department of Health has confirmed that it would be looking at various taxes to fund the scheme – and FTI Consulting’s research shows that it is going to hit taxpayers hard.

To raise R200 billion in the current fiscally constrained environment – and assuming that the number of taxpayers, their spending, etc. remains constant – will require that:

• VAT increase from 15% to 21.5%;

• OR personal income tax rates increase by 31% across the board;

• OR a payroll tax on those employed in the formal, non-agricultural sector of an estimated R1,565 p/m.

“These substantial tax increases will need to be implemented in an already tough economic environment,” the group said.

These tax hikes would have to come at a time when South African households are in recession (in expenditure terms), and getting poorer each year as salaries drop in real terms.

In addition to this, pressure on finances are increasing, unemployment levels remain extremely high, and government is facing a significant budget gap and potentially missing its tax revenue targets by R40 billion.

All of this feeds into the wider view adopted by many economists and analysts that the NHI – while a blunt political tool – is unimplementable and effectively dead in its current form.

source:R1,500 a month tax on everyone with a job in South Africa – funding the NHI – BusinessTech