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Decent Healthcare For All Is Desirable, but Who’ll Pay - And How Much?

Monday, 02 January 2012   (0 Comments)
Posted by: Author: Alan Seccombe
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Decent Healthcare For All Is Desirable, but Who’ll Pay And How Much?

The phased introduction of South Africa’s National Health Insurance (NHI) system– due to be launched in April 2012 in the form of 10 district-specific pilot projects – is expected to impose a financial burden on both employers and employees, according to professional services firm PricewaterhouseCoopers (PwC).The NHI is also set to increase the administrative burden on taxpayers, particularly corporate finance departments.

A significant paradigm shift is expected in how employers and employees would plan and finance their future healthcare benefits.If designed, implemented and managed properly, the planned new NHI could bring the benefits of essential, world-class medical support and public healthcare to a far greater percentage of South Africans.While this is a welcome advance at a time when the government appears to be working towards bringing greater social and economic benefits to a larger percentage of South Africans, the long-term viability of the NHI will demand vast and sustainable taxpayer funding.

While there is no definite indication at this juncture of the likely cost burdens for employers and employees, the national government is poised to more than double its public health budget over the next few years.

According to the NHI Green Paper, the NHI funding will be increased in phases, starting at about R125 billion in 2012 and more than doubling to R256 billion in 2025.These amounts factor in traditional public health service costs that have been part of the government’s annual budgets in recent years.The government, according to Prof. Di McIntyre, associate professor in the Department of Public Health and Primary Healthcare at the University of Cape Town, is set to spend more than R112 billion in public health services for the current 2011/12 fiscal year and is expected to increase this slightly to R120 billion for the 2012/13 fiscal year.This suggests, in time, that taxpayers (directly or indirectly) would have to fund an additional R112 billion annually during the NHI’s start-up phase.Assuming there are eight million taxpayers, this suggests an average additional individual tax burden of about R14 000 a year (almost R1 200 a month), which is significant.It is also likely that the burden will fall on middle to high income earners as opposed to low income earners and therefore the monthly contribution by that sector of society will be much greater.

Many South Africans already endure significant tax burdens, both direct and indirect.Besides having to pay up to 40% of their salaries in personal income tax and 14% value add tax (VAT) on most products and services they consume, many people are subject to other taxes, levies and excise duties.These include fuel levies, customs and excise duties imposed on certain imported goods, capital gains tax, municipal rates, vehicle registration and licensing fees, carbon tax (applicable to certain motor vehicles) and, possibly in the near future, also toll-road fees. 

The real challenge lies in developing an affordable and sustainable NHI funding model.This is especially sensitive given the complex global and regional economic crises and trends that have emerged since the financial crisis of late 2008.Besides many companies being forced to reduce their staff complements and, in many cases, place a moratorium on the hiring of non-strategic staff, many have had to implement other cost-cutting programmes.

Consumers, too, have been experiencing greater financial pressures over the last three years, with continuing inflation being felt the most through (far) higher food, fuel and electricity prices.The government risks prodding the proverbial nerves of taxpayers and it will have to devise a funding model that remains below the pain threshold of taxpayers.

South Africans, however, need to appreciate that the country is moving in line with global trends.Most developed and developing countries have some form of national healthcare/social security system to which employers and employees contribute.While European countries are known for their national health systems, among them the United Kingdom (UK), France, Germany and Sweden, and the high cost of these to their working population and employers, a number of African countries also have social security schemes.

Social security rates in Europe tend to be significantly higher than in Africa due largely to the various developed countries’ superior healthcare infrastructure, skills and services provided to beneficiaries.In the UK, employees contribute 12% on earnings between £7 225 and £42 775 (about R550 000) and 2% thereafter.Employers contribute 13,8% on amounts above £7 225. The highest rate of personal income tax in the UK is 50%, although the maximum applicable rate is 40% for most employees. In France, the highest rate of personal income tax is 41% with a social security surcharge of 12,3%. French employers can contribute up to 50% of the employee’s salary and the employee contribution is around 20%.

In Mozambique, employers pay only 4% of the remuneration cost (with no cap) and collect 3% from the employee (also without a cap) for their social security contributions.In Zimbabwe, both employer and employee contribute 3% by way of social security.This is in addition to the 3% Aids levy imposed on individual taxpayers.Botswana and Namibia, according to PwC, have minimal social security contributions. 

Up until now, South African employers have made minimal direct contribution to the social welfare of their employees through a 1% levy on remuneration made to employees to the Unemployment Insurance Fund (UIF).This amount, however, is capped at R124 per employee each month and, therefore, is a minimal expense for employers.Employers must contribute 1% of remuneration to the national Skills Development Fund through the skills development levy.Employees have to fund their own social benefits through their contributions to medical schemes and retirement funds.Tax relief on medical and retirement fund contributions has reduced the effective cost of this for employees.

Tax reforms, actual and proposed, are eroding the tax benefits associated with such contributions in the form of a capped tax credit for medical expenses and a proposed cap on the amount allowed as a tax deduction for retirement fund contributions.South African taxpayers may feel aggrieved that tax relief on medical and pension contributions are being eroded and also concerned about the impact of the State medical fund.However, we need only look to other countries to realise that while the amounts are not yet known, the government appears to have little choice but to fund NHI and further social reforms from the pockets of employees and their employers.

Source: By Alan Seccombe (TaxTALK)



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