Government is misleading the public and its much-vaunted National Health Insurance (NHI) plan is unaffordable unless taxes are increased dramatically, a study headed by Prof. Jannie Rossouw, professor of economics and head of the school of economics and business sciences at the University of the Witwatersrand, has found.

The study, co-authored by Mike Holland of PriceMetrics, is to be handed in to the parliamentary portfolio committee on health by Solidarity trade union as part of its submission on the NHI. TheSouthAfrican has had access to a copy of the report.

NHI: Question of cost still unanswered

The report argues that the memorandum to the NHI Bill currently before the committee, as agreed to by Cabinet, “attempts to mislead the public and Members of Parliament” by avoiding any mention of the cost of providing the services of NHI, focusing instead on the initial operational costs of establishing the NHI Fund including a human resources capitation fund and some relatively minor short-term interventions.

The most recent cost estimates in the public domain were in fact released with the NHI White Paper in 2017, but that was based on 2010 values, which would have created what the report calls “a false impression of actual implementation costs.”

In fact, the report states that “It appears that the introduction of the NHI has not been subjected to any cost benefit analysis by the Department of Health since a 2012 analysis by Treasury.”

Rossouw and Holland calculate that the funding gap for the NHI in 2026 (when it is envisioned to be implemented) will be around R226,9 billion, which is a shortfall of more than R166 billion in current (2019) terms.

That means the funding gap by 2026 should be around 10,8% of projected government revenue, which means that taxes will have to be raised by 10,8% to make up the shortfall.

Calls for consideration to be halted

The report points out, however, that spiralling government debt has increased from 25% of the gross domestic product (GDP) ten years ago to its current levels of 60% of GDP, and that social grant spending, together with an ever increasing public service wage bill and interest on government debt now gobble up 73% of government revenue, compared to 55% ten years ago.

To add to the cramped fiscal space, state-owned entities are draining the fiscus, the turning point on the so-called Laffer Curve having been reached x- further tax increases will so stifle growth, inhibit investment and aid capital flight that it will not add to government revenue.

Rossouw and Holland furthermore calculate that the only way for the state to finance the NHI is by increasing VAT, a payroll tax on employers, a surcharge on the taxable income of individuals, higher corporate tax, higher personal income tax or a combination of these and other increases, as well as a cancellation of medical tax credits.

An effect of the proposed NHI would also be cancellation of private medical aid membership, thereby increasing the burden on the already faltering public health system,

The report therefore concludes that Parliament should not even consider the NHI Bill until it has been truthfully and accurately costed.