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Category: Taxation

Ever since the Department of Health (DoH) published its Green paper in 2011, the public debate about how to finance the National Health Insurance (NHI) reform has been in limbo. But behind closed doors, there has no doubt been a fierce debate between the DoH and the Treasury. The Treasury was to publish a Discussion Paper in April 2012, but that did not happen. Rumour has it that it will be published soon.

It will be interesting to read, to put it mildly. In the Mid Term Budget Policy Statement (MTBPS) from October, the acronym NHI does not appear. In real terms for 2012-2016 alone, the Treasury is about R150 billion behind the plan for public health reform modelled by the DoH in the 2011 Green Paper. Indeed, there are no traces what so ever of the NHI in the Treasury's budget plans.

R bn (2010 prices)

DoH 2011

Fiscal year

MTBPS 2013

MTBPS shortfall

2012

125.4

2012/13

113.5

11.9

2013

134.8

2013/14

113.4

21.4

2014

144.4

2014/15

116.2

28.2

2015

156.2

2015/16

117.6

38.6

2016

166.7

2016/17

119.1

47.6

Table 1: The 2011 Green paper from Department of Health made a projection forward to 2025 in 2010 fixed prices (i.e. real costs). The current prices for Health in the MTBPS have been changed to 2010 fixed prices by using the Consumer Price Index (CPI) as predicted by the Treasury. Using the GDP deflator, which perhaps is more correct, and the real shortfall is even R5bn higher over the period.

The 2011 Green Paper proposed that the size and strength of the public health sector ought to be more than doubled between 2010 and 2025, making clear that resources have to be transferred to public health from private health. This is a very reasonable position. Private health comprises about 4 percent of GDP, or half of South Africa's spending on health, but it only serves 16 percent of the population. Public provision of health is under severe pressure. Taking into consideration the need for services in health, education and social development, South Africa should ensure that it has public sector capable of playing a bigger role in the economy.

Redistribution from private to public must therefore be on the agenda. First, there is a limit to possible reallocations within the budget. Second, a thoroughgoing reform like NHI cannot be financed with increased borrowing. Third, and whatever the National Development Plan (NDP) says, it is very unlikely that economic growth will be above 3 percent every year until 2025. 2010, the Treasury projected a 4.2% GDP growth for 2012/13. Today the prediction is "2.4%". The global recession continues.

Using the numbers from the 2011 Green Paper, the share of Public Health to GDP grows by 2 percentage points, even if we assume a 3.5 percent real average growth of GDP until 2025. With lower average GDP growth, a public health sector reformed in the spirit of the Department of Health will be larger than 5.8 percent of GDP in 2025 (Table 2).

 

R billion (2010 prices)

The 2011 Green Paper

NHI-plan

“3.5% GDP growth”

NHI as share of GDP

2010

101.0

2663

3.8%

2013

134.8

2944

4.6%

2014

144.4

3047

4.7%

2015

156.2

3153

5.0%

2016

166.7

3264

5.1%

2020

213.6

3745

5.7%

2025

255.8

4448

5.8%

Table 2: NHI as share of GDP 2010-2025 in 2010 prices, assuming that GDP grows by 3.5 percent per year from 2012 (2010-2011 were given). Source: DoH's 2011 Green Paper and own calculations.

The conclusion from this is that anything the least like the NHI reform envisioned in DoH's Green Paper cannot be financed by growth alone. Redistribution of resources from private to public is necessary. To scrap tax deductions for private medical insurance comes first to mind. Obliging the private health industry to put some of its resources at the disposal of public health on a cost price or rebated basis is another option. All in all, the tax revenue to GDP ratio must increase from around 25 percent. Tax rates should increase for high income earners and the very rich that dodge taxes must be brought into the system. Corporate tax dodging and avoidance must be effectively curbed. The Treasury, in order to free the much needed funding, must end its series of tax cuts.

From the side of financing, the two or more percentage points that popped out from the simple model above must be added to the tax revenue. The lower the GDP growth rate, the more we have to exceed 25 percent tax revenue to GDP to implement the NHI alone.

In contrast, since 1989 – save for 3-4 years in the middle of 2000's when GDP at one point even fell – the tax revenue to GDP has hovered around 25 percent. Since 2009/10, we are back at the usual levels. Still, so we have been told, the Finance Minister Pravin Gordhan argues at meetings that there exists no Tax revenue to GDP policy, confusing his critics.

The 25 percent tax revenue policy rule was spelled out in the 1996 GEAR document. It was repeated again in the 2012 budget speech. Tax revenue to GDP was to be "stabilising" at a quarter of GDP, said the Finance Minister. He said that in a bullet-pointed part of the speech called "Key features of the budget framework". In addition to declaring his belief in a small public sector, he promised to decrease the budget deficit from 4.8% to 3% of GDP (a goal inherited from the European Union), to cut public sector borrowing from 7.1 to 5% over three years and to limit real growth in non-interest public expenditure to 2.6% per year. The Finance Minister spoke to the credit ratings institutes and the corporate world. In the 2011 Green Paper, the average yearly real growth in Public Health expenditure 2012-2016 (Table 1) was suggested to be above 7%.

The Department of Health and the Treasury are miles away from each other in their vision of a reformed public health sector in South Africa. The gulf in numbers reflects of course an ideological gulf and two kinds of politics. In short: The Treasury doesn't want to confront the private insurance industry and the private health oligopoly.

Friends of public health, who neither want a mere parody of public sector health reform nor a public sector health turned into another Eldorado for tenders and corporate profiteering, must sound the alarm. Much of the financing discussions on the NHI have been kept out of the public domain. All secrecy must end now.

Dick Forslund is an economist and researcher at the Alternative Information and Development Centre (AIDC).

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