A proposal to scrap medical aid tax credits has been greeted with outrage, with some experts warning that such a move would have a devastating effect on an already struggling middle class. File photo

Durban – A proposal to scrap medical aid tax credits has been greeted with outrage, with some experts warning that such a move would have a devastating effect on an already struggling middle class.

The ANC announced last week that it was mooting “redirecting” the medical aid tax rebates paid to individuals to help fund the National Health Insurance (NHI).

This is also contained in the White Paper on the NHI, published last month. 

Chairperson of the ANC’s subcommittee on health and education, Naledi Pandor, said about R22 billion in medical aid tax rebates was paid back to individuals on medical aid each year.

The party’s policy conference, which ended last week, had resolved that this be considered as a means of funding NHI, the country’s proposed universal health-care scheme.

Frans Cronje, the chief executive of the Institute for Race Relations (IRR), said the middle class was already struggling to get by and scrapping the tax credits would put more pressure on this group.

“Household debt is now 50% higher than it was 15 years ago, so you have a middle class that is already struggling to pay for school fees, cars and their homes, and to buy groceries, so it is incorrect to assume that these are rich people.”

Cronje further argued that the move would compromise consumer spending and thus further reduce levels of economic growth. 

The NHI was simply not achievable at this stage as the country’s economy is sluggish and in a technical recession, he said.

Mark Heywood, the executive director of Section27, said he felt the issue needed careful consideration as it is more nuanced than it seems.

While the tax rebates were funding the private health sector, the assumption that scrapping the rebates was taking from the rich and giving to the poor is wrong, Heywood said, adding that a recent survey had shown that about 25% of people who are on medical aid are workers, many of whom are struggling.

“So you cannot take from Peter to pay Paul when both Peter and Paul are relatively poor,” Heywood said.

He also said that scrapping medical aid tax rebates could lead to the cost of private health care rising, when in fact the solution to improving the state of health care should be to reduce the cost of private health care.

He said funding the NHI would require much more money than could be made available through the tax rebates. 

Other sources of funding the programme should be sought and this would require government to rework its priorities, Heywood argued. 

“We can look at where more taxes can be collected without hurting the economy. 

“Also it is estimated that at least R60 billion is lost to corruption, imagine what you could do with that money if you were to eliminate corruption”.

Jasson Urbach, the director of the Free Market Foundation, said he was opposed to the single payer model of universal health system. 

He warned that scrapping the tax credits would make medical schemes less affordable for many people and thus push them back to the already overstretched public health care system.

“The irony of this is that medical aid tax credits were introduced in order to encourage individuals to rely less on public health care.”

Increasing payroll and personal taxes was also not the solution, Urbach argued, saying the population was already overtaxed as the tax base is very narrow. 

“Increasing taxes reduces the amount of savings within the economy and that negatively affects investments.”

Economist Iraj Abedian said the main problem for the implementation of NHI was the quality of management and culture of service delivery at public health facilities.

“Money is important but it is secondary to these issues,” he said.

Abedian also echoed sentiments on the impact on the cost of private health care. 

“The implications will be huge; if you take away R20 billion in rebates that would mean pushing up the cost by R20bn,” he said.

The Mercury