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South African taxpayers will bear the brunt of the NHI

There are four possible funding sources NHI.
Government's capacity to fund and facilitate the controversial NHI Bill comes into question. Picture: Nadine Hutton, Bloomberg

South Africa’s government recently released the National Health Insurance (NHI) Bill whose aim is to extend universal healthcare to all South Africans.

But the Bill has sparked a great deal of controversy. The impact on private health care, quality of service and the government’s ability to manage such a complex system have been widely questioned.

One of the toughest questions being asked is: how on earth will it be funded?

Read: Health plan is affordable, won’t add to debt – health minister

The memorandum on the objects of the Bill explains that the NHI will be financed in various interrelated phases as determined in consultation with the National Treasury. Costing estimates vary from the health department’s “guesstimated” R259 billion last year, to the Institute of Race Relations calculation of R450 billion.

Read: NHI benefits and implementation remain undiagnosed

National Treasury is currently doing the costing exercise. It has said it will release more information at a later stage.

What’s known about the funding proposals can be gleaned from the Bill itself. These four proposals target the same low-hanging fruit, namely income tax.

The four sources

Source 1: Existing tax revenue: This pool of general tax revenue includes funds currently directed to the provincial health departments (the so-called “provincial equitable share” and “conditional grants”).

The main public health funding stream consists of around R150 billion per year, which would be tapped for the NHI. The memorandum notes that this shifting of funds would occur in one of the later phases, and would require amendments to the National Health Act of 2003. It would also be dependent on how functions are shifted from provincial to national level; for example, if central hospitals were brought to the national level.

Source 2: Scrapping medical scheme tax credits: This entails the reallocation of funding for medical scheme tax credits paid to various medical schemes towards the funding of the NHI. In other words, the current tax relief provided for by the medical tax credits would fall away. The impact on, for example, a family of four, would amount to just over R12 000 per year. This means that the tax owing to Sars would increase by about R12 000 per year for the main member of the medical scheme.

Calculation of medical scheme tax credit = (R620 + R209 + R209) x 12 months = R12 456.

Source 3: Payroll tax on employer and employee: The memorandum envisages that the payroll tax will be “small”. The Bill does not, however, quantify its “smallness” – or indeed, the magnitude.

In my view this payroll tax is in essence a tax on labour and productivity. For example, the payroll tax would inevitably result in reduced earnings or, worse, job losses.

Source 4: Surcharge on personal income tax: The Bill does not contain any information regarding this surcharge, other than that it would be charged on an individual’s taxable income. This extra tax on taxable income could be viewed as a penalty (or disincentive) for increased productivity and wealth – yet another reason why some might participate in the silent tax revolt.

Despite not knowing the percentage of additional tax that might be levied, it is important to look at the number of taxpayers who will have to bear this additional tax. This metric is called the tax base.

The tax base

The country has a narrow tax base, defined as the number of individuals who were assessed for personal income tax. This is not to be confused with the number of registered individual taxpayers, which has increased by 4.9% from 2016/17 to 2017/18. The increase may be ascribed to the revised employee registration process which was introduced by the South African Revenue Service in 2010.

This process requires employers to register all individuals and issue them with a tax certificate, regardless of the amount of income earned. However, many of these taxpayers fall below the tax threshold and are thus not assessed. They are also not liable for the tax employers deduct from salaries and wages and hand over to the South African Revenue Service.

Conversely, the number of taxpayers actually assessed (or taxed) showed a sharp decline. In the 2013/14 tax year, a total of 5 991 934 individuals were assessed. This figure dropped to 4 898 565 individuals assessed in 2016/2017. The tax base therefore shrunk by about 18.2% from 2014 to 2017.

In contrast, the personal income tax burden shouldered by these individual taxpayers has increased. This can be expressed as the average personal income tax paid per assessed taxpayer. In the 2013/14 tax year, the tax burden amounted to R45 702. This burden expanded to R65 601 in 2016/2017, representing a whopping 43.5% increase from 2014 to 2017.

The overall result is that relatively fewer taxpayers have to carry an increasing burden of tax collections. Given the country’s poor economic outlook, credit rating downgrades, high unemployment figures and the myriad of social grants paid to millions of dependent individuals, it is clear that the tax base is already severely strained.

The NHI will simply add to this burden.

Social solidarity

The Bill attempts to make the extra tax burden more palatable by saying that the money will be collected “in accordance with social solidarity”. This is an interesting phrase used by the drafters of the Bill. “Social solidarity” is a concept that was developed by the Frenchman Émile Durkheim in the late 1800s. Its core principle is that of collective action and enabling individuals to feel that they can enhance the lives of others.

The social solidarity envisaged by the memorandum is that of income cross-subsidies between “the affluent and the impoverished”. All well and good, until one considers that the payment of taxes is not a voluntary action done for the wellbeing of others. It is a legal obligation imposed by the state on its citizens. Social solidarity, therefore, implies a sense of altruism. A duty to pay income tax can hardly be said to be an act of selflessness.

Of course, what probably offends most taxpayers is not the communist undertone of social solidarity, which harks back to “from each according to his ability, to each according to his needs”. Rather, it is the sense of frustration with a government rife with corruption, the widespread misuse of public funds and the brazen lack of accountability. The NHI funding proposals may very well be perceived as adding insult to injury for the 4.9 million individuals paying personal income tax.

It is somewhat of a relief that (according to the memorandum) tax options will only be evaluated as part of the last stage of implementation. Hopefully, the National Treasury will do a full impact analysis and take into account the economic and fiscal environment prevailing at the time.The Conversation

Dr Lee-Ann Steenkamp is a senior lecturer in taxation at the University of Stellenbosch Business School (USB), Stellenbosch University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Who would have thought……………?

Who else do you think is going to pay for your health care? Santa Claus?

Obviously you are correct but at least in my opinion the people who pay personal tax are going to pay significantly more for a significantly lower standard of health care. I also hate the term social solidarity because it means I am going to pay a fortune to subsidies people who do not value my contribution to society.

And of course the vast majority of the recipients won’t pay, they have never paid and even if they could pay, they still wouldn’t. Just like 60% of Soweto residents who to this day don’t pay for their electricity.

Off Course the taxpayer will pay.

That’s if they don”t say (you know what I mean) and stop paying ALL taxes all together.

Just keep pushing.

Seems pretty clear to me that staying here in SA with your healthcare totally in the hands of the state is not an option. EVER. So for me it’s going to have to be a hard pass.

It is clearly going to be very tough on the taxpayers that stay.

This equates to approximately R5000 extra tax per month per taxpayer if we just take the lower figure of R259 billion and assume 4.5 million taxpayers. As we have an aggressively progressive tax system, you can rest assured that the burden for NHI will fall on less than 1 mill taxpayers which then works out at over R21,000 extra tax per month. Now if we factor in the thousands of taxpayers who are fleeing this stupidity, the figures become silly for those poor taxpayers left here to shoulder the burden. The ANC’s National Democratic Revolution will then have accomplished it’s goal of destroying a great country.

A new channel for the ANC to continue stealing from the citizens of South Africa

A couple of years ago Mike Schussler, if my memory serves me correctly, estimated that some 3.5 million South Africans were paying 95% of ALL taxes. That is: income tax, VAT, corporate tax, CGT and the hundred other stealth taxes levied by the ANC. Note: ALL taxes!! That fund all our Govt operations. We now have some 17 million (or is it 19 million?) people on social grants. We also have a population of 58 million. I would love the ANC to explain just how these 58 million can have free quality healthcare when a tiny fraction of SA taxpayers are already shouldering the overall tax burden. Simply does not compute.

So typical of post election activity.

We had the half the farm to the labourer plan, nothing happened.

Land distribution… nothing happened.

This health thing was raised in 2009. Now we have a plan, another 10 years…….

National Health will mean nothing if the lights go out.

The title of this article is not correct, it should be:
“The few South African taxpayers left after mass emigration will bear the brunt of the NHI”

“Social solidarity – Its core principle is that of collective action and enabling individuals to feel that they can enhance the lives of others.” – Isn’t this what the current tax payers are doing already and have been doing since 1994? Is the tax base not tapped out as it is?

Regarding a “small” payroll tax – isn’t that what this bunch said about the then new fuel levy – it was going to be a small levy to help with road accidents etc. Now its around 42% of the fuel price. Lying thieving bunch of criminals in suits.

Apparently hardworking people have no inkling of what to do with the money they earned. Sit at home stressing about what to do with their savings. In steps Mkize magnanimously with a solution to their dilemma. He expropriates it through legalized theft and hands it to perfect strangers. He says “we cannot afford not to have NHI”. Of course not. All the tenderpreneurs are busy registering companies in anticipation of the huge windfall in the making and they rely on him. Seems to believe that it will be easy to make doctors into indentured slaves. Shisana wants the NHI to spite the whites. Wonder what my husband’s patients with chronic illnesses will think of that. Healthy, 20+ years of fine tuning their treatment, because no, there is no such thing as one size fits all. Curiously enough, 80% are black, civil servants and the like and demand a high level of personal attention from the Specialist Physician. Cosatu members, many. Imagine the surprize when they sit in line in a run down clinic waiting on their Cuban doctor who then has to prescribe according to a formulae. If he diagnoses right. If the medicine is available. Mkize drones on about “world-class care”. Saying it is so does not make it so, Sir.

What is more concerning is where will government find competent people to make this work?

Absolutely brilliant article. Well researched and well written. It helps if someone takes the time to work through the Draft National Health Insurance Bill. Very insightful. Thank you Lee-Ann.

Source 1: The taxpayer
Source 2: The taxpayer
Source 3: The taxpayer
Source 4: The taxpayer

Source 5: Profitable State-Owned Enterprises

Wait, scratch that last one.

Only if our State Owned Entities were run prudently and with national accountability, no South African would be found wanting….We are a very wealthy country but some see it as their fiefdom…

An old DEPECHE MODE song comes to mind, which eerily resonates with the NHI:

“The handshake seals the (NHI) contract
From the contract, there’s no turning back
The turning point of a (doctor’s) career”
….
….
“The grabbing hands grab all they can
All for themselves, after all
It’s a competitive world
EVERYTHING COUNTS in large amounts”
….
….
The graph on the wall
Tells the story of it all”

So that nice man who came through my window a few nights ago and stole my laptop was showing “social solidarity”? Who knew …

There is only one flaw in the brilliant NHI: It is nuts.

The Government can barely:

Keep the lights on,
Keep SAA/Express in the air
Deliver my post on time if ever (without it going astray or stolen)
Run efficient Municipalities,
Keep trains on the tracks,
Grow the economy,
Fix potholes,
Protect me (Next thing they will Nationalize private security companies) I wouldn’t put it past them
The list of their failures and corrupt endeavors is endless and unemployment on the rise to a point of NO RETURN

Now they want to fool us into believing the NHI is plausible because it works in other countries! Let them be reminded that the “other” countries are not on the brink of an economic collapse, their hospitals are world class, their societies hard working and the peoples taxes well spent and not squandered or stolen by civil servants to buy cars, fancy clothes and KFC. This Government is one clown short of a circus trying to compare First World Countries to a corrupt African Country! It’s laughable to the point of hilarious all the while the very people contributing to the bulk of revenue to State Coffers through income tax are the very souls packing their bags..Will the last hard working tax payer please switch off the lights when you leave..Never mind, should you forget,Eskom will oblige!

My dear ANC. Aiming to tax SA’s citizens even more in coming years….

….let us kindly REMIND YOU that:

Individual income tax rates in Georgia is 20% flat (15% for companies)

Mauritius has a 15% flat rate for Indiv & Co’s (no CGT, nor estate duty tax)

Montenegro has a 9% (yes, nine!) corporate tax rate.

Botswana has a 25% Indiv tax rate.
Even Lesotho beats SA with a 30% Indiv tax rate….

(I can stretch this list tediously long with more global examples if I want to)

We even “got Trumped” by the USA with lowered corporate taxes.

Dear Michael : The ANC would love you to emigrate asap to one of the countries they mention. Until everyone lives Zimbabwe style , I doubt your facts are of the least concern to them .

Michael should stay in Klerksdorp. We need him there.

“from each according to his ability, to each according to his needs”

translation…

“Some work to make a living, others vote to make a living”

Yay for socialism!

The biggest financial hit (especially for the elderly)will be the withdrawal of medical rebates and particularly the “extra” rebates in times of heavy expenses .
i guess a solution is just to die earlier !!!
This will kill Med Aids as I dont see taxpayers contributing to both .

…agree 100%. As a tax-prac I can tell you that medical rebates (especially the “additional” Section 6B rebates, after age 65) is virtually the ONLY source of a pensioner’s tax refund. If that is taken away, the financial impact will be severe.

Impact will be lesser felt for us working lot (who has RA, car allowances, business or other expenses we can claim)…but for pensioners, that is the last tax benefit available to them.

(Let’s just hope, when the need for a private med aids falls away…that the cost-premium of NHI is hopefully lower, and thus compensate for loss on tax rebates. But with lower cost, comes worse level of healthcare. Best way just to die naturally, a bit sooner).

For some reason I believe there is a hidden agenda from government side as usual. Not one of the pilot hospitals were upgraded or adapted to test the NHI theory. As a matter of fact the hospitals is in a far worse state than when they implemented the pilot program. Actually if one look at the current situation there is free healthcare for any person which does not have a medical aid or hospital. If you are classified as a H1 patient you can get a heart bypass for free. The person with a medical aid will pay hundreds of thousand rand for it which is his right. Why would this bother the government if medical aid members are actually reduce the burden on the government?

We all know the current state of the government coffers. So what would be the easiest way of getting your hands on vasts amount of cash? Expropriate or nationalize all medical funds and private hospitals. They immediately have access to well maintained hospitals and above average personnel and the loot of billions to prop the system up for a few years.

Everything about this is a terrible idea. The funding has not been “solved” according to the minister but we know what it will be, tax payers.

They want the cash reserves and that means medical aid will be nationalized in essence.

They mentioned 2025, if that is the timing then gives everyone time to arrange an exit. I am not convinced they will be able to implement this at all, nevermind in that timing.

In true ANC fashion, instead of fixing public healthcare and increasing regulation of private healthcare, they focus on the quick fix option that will take the country a couple steps closer to bankruptcy.

The madness that is South Africa at play. The ANC Government is a serial destroyer yet seeks the taxpayer to bail it out time-and-time again yet receives the vote of the people at election time. In any society where the taxpayer and the key voter base is not one and same you get a country on a suicide mission.

Look deeper at the tax base. About 0.04% of the population or 8% of the tax base pays 40% of all personal income tax. These people including me are older, frightened of no health care in old age have the means to leave and are leaving. Bye bye 40% of personal tax. When we get flack about the money spent on the health care for people with private medical aid vs what gets spent in the public sector the fact that this same small number of tax payers not only fund themselves they also stump up the 150 billion for the public sector. We pay for both.

Social solidarity……More like anc socialist ideology feeding of capitists!…wont last and the 6 million funders of this marxist gimme club will get angry, very angry!

End of comments.

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