Sound the alarm: there is no NHI in SA’s budget plans

By Dick Forslund Time of article published Nov 27, 2013

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Ever since the Department of Health 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 department and the National Treasury. The Treasury was to publish a discussion paper in April last year, but that did not happen. Rumour has it that the discussion paper will be published soon.

It will be interesting to read, to put it mildly. In the medium-term budget policy statement last month, the acronym NHI does not appear. In real terms for 2012/16 alone, the Treasury is about R150 billion behind the plan for public health reform modelled in the 2011 Green Paper. Indeed, there are no traces whatsoever of the NHI in the Treasury’s budget plans.

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 would have to be transferred to public health from private health.

This is a very reasonable position. Private health comprises about 4 percent of gross domestic product (GDP), or half of South Africa’s spending on health, but it serves only 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 a 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 says, it is very unlikely that economic growth will be above 3 percent every year until 2025. In 2010, the Treasury projected 4.2 percent GDP growth for 2012/13. Today the prediction is 2.4 percent. The global recession continues.

Using the numbers from the 2011 Green Paper, the share of public health in 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 will be larger than 5.8 percent of GDP in 2025.

The conclusion from this is that anything the least like the NHI reform envisioned in the department’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 rise for high-income earners and the very rich who dodge taxes must be brought into the system. Corporate-tax dodging and avoidance must be effectively curbed. The Treasury, in order to free up 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 three to four years in the middle of the 2000s when GDP at one point even fell – the tax revenue to GDP ratio has hovered around 25 percent. Since 2009/10, we are back at the usual levels. Still, so we have been told, 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 (Growth, Employment and Redistribution) document. It was repeated again in the 2012 Budget speech. Tax revenue to GDP was to be “stabilising” at a quarter of GDP, the finance minister said.

In addition to declaring his belief in a small public sector, he promised to decrease the budget deficit from 4.8 percent to 3 percent of GDP (a goal inherited from the EU), to cut public sector borrowing from 7.1 percent to 5 percent over three years and to limit real growth in non-interest public expenditure to 2.6 percent a year.

The Department of Health and the Treasury are miles away from each other in their vision of a reformed public health sector. The gulf in numbers reflects of course an ideological gulf and two kinds of politics. In short: the Treasury does not 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.

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