The National Treasury has delayed plans to set up a National Health Insurance (NHI) fund, saying it wants advice from the Davis tax committee on the feasibility of proposals to adjust the medical tax credits to finance it, it said in its Medium-Term Budget Policy Statement (MTBPS).
Moneyweb reports that this follows after the 2017 Budget Speech said it was considering the reduction of the subsidy as part of the financing framework for the NHI.
According to the report, research conducted by Econex suggests that roughly 1.9m people (more than 20% of medical scheme beneficiaries) were at risk of losing their private medical scheme membership if tax credits were removed. National Treasury’s own data suggest that the programme is “well-targeted to lower and middle-income taxpayers”.
The report says the medical aid tax deduction was changed to a credit in 2012.
“In 2014/15, 3m taxpayers claimed the credit on behalf of 8m medical scheme members, resulting in a tax expenditure of R18.5bn. The incidence of these credits is spread across the income distribution: 56% of the total credits claimed accrued to 1.9m taxpayers who had a taxable income of less than R300,000. This includes many workers who belong to medical aid schemes,” Treasury is quoted in the report as saying.
Treasury confirmed that it was working with the Department of Health on proposals to expand NHI services in “a progressive and affordable manner”. “Legislation is being drafted to establish the legal framework for a NHI Fund. Government is considering options to establish an interim fund structure to support a limited set of priority interventions, and operate in line with current legislation.”
The report said it warned that additional tax proposals had to be carefully considered due to the overall pressure on the fiscus.
Although the Treasury does not directly say so, Business Day reports that the data indicate that scrapping or sharply reducing the medical tax credits will hit people with lower incomes particularly hard, and potentially make their medical scheme cover unaffordable
The report says medical tax credits are primarily given for medical scheme membership, but people can also claim a tax credit for additional medical expenses that they pay out of pocket.
The Treasury’s deputy director-general for intergovernmental relations, Malijeng Ngqaleni, said the government was still working on an NHI bill, and an interim mechanism to establish financing for specific health programmes.
The Treasury said in February that the NHI fund would initially support priority programmes identified by Health Minister Aaron Motsoaledi, which included maternal health services, improved psychiatric care and services for the elderly and disabled. It would also provide hearing aids and glasses through the school health programme.
“The National Treasury and the Department of Health are working on proposals to expand NHI services in a progressive and affordable manner,” Gigaba said in the MTBPS.