By Tamar Kahn, 13 November 2017, businesslive.co.za.
Davis tax committee says plan not feasible without growth and will need to take finances from other projects.
National Health Insurance (NHI) was not feasible without sustained economic growth. It required so much money that the government would have to make trade-offs with other spending plans such as expanding access to tertiary education, the Davis tax committee warned on Monday.
NHI is the government’s ambitious policy for implementing universal healthcare, which it promises will provide everyone with services that are free at the point of service.
The committee, which is headed by Judge Dennis Davis, released six reports on various aspects of tax administration, including one on NHI. The report is based on an analysis of the government’s first NHI white paper, which was published for comment in December 2015 and signed off several months before Health Minister Aaron Motsoaledi released a revised white paper in June. However, the two white papers contain virtually identical proposals for financing.
The committee expressed concern about the lack of clarity on how NHI would be implemented and operated, saying more details were needed to understand its resource requirements. It consequently stopped short of making firm recommendations on ways of financing NHI, saying to do so would be premature.
However, it said substantial increases in VAT or personal income tax, possibly along with a new social security tax, would be required to fund NHI.
Revenue raised to fund NHI should not be earmarked, as that risked underfunding, it said.
The committee sounded a note of caution on the revenue shortfalls projected in the white paper, which it said were extremely sensitive to assumptions about economic growth.
In the 2011 white paper, the revenue shortfall was estimated at R71.9bn in 2010 prices by 2025-26, assuming the economy grew at 3.5%, and R108bn if economic growth slowed to 2%. More recent real growth forecasts published by Econex arrived at a revenue shortfall of R111bn in 2010 prices by 2025-26. Econex economist Paula Armstrong said that the report provided a thorough and rational analysis of the NHI landscape.
“It doesn’t provide precise detail on how the tax system should be used to generate the revenue required, but this is understandable, given the lack of clarity around NHI.”