Business groups drop NHI tax bombshell

Organised business has sounded a warning about the feasibility of National Health Insurance (NHI), saying the huge tax increases required by the government’s plan are unaffordable.

The government’s estimate that it will need to raise an extra R200bn in tax revenue to finance NHI would require increasing personal income tax by almost one-third, VAT from 15% to 21% or applying a payroll tax that is 10 times higher than the current UIF contribution, or a combination of these three increases, Business Unity SA (Busa) and Business for SA (B4SA) said in a joint statement.

“This is obviously unworkable as SA taxpayers are already under extreme financial pressure and any increases are bound to impact them materially,” they said.

Busa represents organised business interests, while B4SA is an alliance of business leaders that works with the government on problems confronting SA. The tax impact analysis was provided by FTI Consulting.

NHI is the government’s controversial plan for reforming SA’s healthcare system to achieve universal coverage. It aims to create a single health service for all citizens that is free at the point of delivery, built on social solidarity principles in which the rich and healthy subsidise the poor and sick.

The first piece of enabling legislation for the plan, the NHI Bill, was passed by the National Assembly in June and is now under consideration by the National Council of Provinces.

The bill proposes establishing a central NHI fund that will pool funds to purchase services from accredited public and private providers for all eligible patients. One of its most contentious aspects is the sharply diminished role of medical schemes, which will only be allowed to offer “complementary cover” for services not provided by the scheme once it is fully implemented.

Organised business said it supports the concept of universal health coverage, as healthy populations are more productive and can participate more meaningfully in the economy, but it does not support the single purchaser model set out in the bill.

Risk

“The NHI Bill’s single funder model, where government is the only source of funding and procurement for all health services, poses a significant risk to the economy. It introduces serious systemic risks associated with governance, the country’s ability to attract and retain skills and investment, the removal of competition in buying health services and the feasibility of raising taxes,” it said.

“It is imperative that we get the NHI model right before it is adopted into law as there are severe ramifications and unintended consequences for passing and subsequently implementing legislation that is not fit for purpose.”

Busa previously appealed to the government to let medical schemes continue under NHI, arguing that this will ensure the private sector remains viable and reduce the load on public health facilities. At SA’s second presidential health summit in May, it proposed that section 33 of the bill be amended to allow a multipurchaser model. That appeal fell on deaf ears, but B4SA chair Martin Kingston said there is still scope for this aspect of the bill to be amended by the National Council of Provinces.

“There is a heightened awareness of the contradictions that exist in the proposed legislation and a keen interest among all stakeholders, including government, in seeing how there can be a realistic and pragmatic approach to universal health coverage based on a model that is implementable,” he said.

Economic circumstances have worsened significantly since the bill was drafted, he said, noting that the Treasury is expected to signal further budget cuts in October.

Business has demonstrated it can play a powerful role in tackling some of SA’s most pressing problems. The private sector has immense resources and capabilities that could be tapped into to improve the delivery of healthcare, but not in the manner proposed in the NHI Bill, Kingston said. “We don’t think collapsing everything into the structure that is being postulated is appropriate.”

kahnt@businesslive.co.za