Finance Minister Enoch Godongwana has expressed caution about proposals to phase out medical scheme tax credits to help fund National Health Insurance (NHI), saying that alternatives needed to be found if that were to happen.
The Health Department has said scrapping the credits could start from next April, with high-income earners being the first to be affected, reports Business Day.
Shortly before tabling his medium-term budget policy speech (MTBPS) yesterday, Godongowana said: “My worry … is that if you look at who is paying our PIT (personal income tax), it’s the same group you want to take medical credits away from. It’s actually an attack on the middle class.
“I’m not saying we should not do medical tax credits, but once we do that we must present … the alternative,” he added.
Medical tax credits ensure all eligible beneficiaries receive the same tax relief, regardless of their income. They include a tax credit for medical scheme contributions, currently set at R364 a month for the first two members and R246 a month for each additional dependant, and a medical expenses tax credit for qualifying out-of-pocket healthcare expenditure.
The government provided R30.4bn in tax credits to medical scheme members in 2022/23, and a further R9bn in tax credits for qualifying out-of-pocket healthcare expenditure, according to the February Budget Review.
In the run-up to the MTBPS, the Board of Healthcare Funders and the Health Funders Association had urged the Finance Minister to use the occasion to clarify the Treasury’s position on the future of these credits.
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The issue is under discussion with the Health Department, but the Treasury has yet to finalise its position, said its Deputy DG for tax and financial sector policy, Chris Axelson.
While the Treasury does not usually ring-fence revenue streams for specific programmes, the Treasury had previously “soft-earmarked” the savings achieved by freezing the medical tax credits and not increasing them in line with inflation for NHI, Axelson told Business Day.
The MTBPS allocates an additional R755m to Health via the special appropriation Bill tabled in Parliament by Godongwana in September, of which R590.4m goes to provinces as conditional grants to fund HIV/Aids and TB programmes affected by the withdrawal of Pepfar funding.
The SA Medical Research Council gets an extra R132m to counter the cuts to grants administered by the US National Institutes of Health, and an extra R32.1m is added to the NHI indirect grant to strengthen SA’s health system.
Consolidated health expenditure is set to grow by an average of 3.9% over the medium-term expenditure framework, rising from a revised estimate of R298.9bn in 2025/26 to R308.6bn in 2026/27, and then increasing to R322.4bn in 2027/28 and R335.5bn in the outer year.
The Treasury projects inflation will average 3.4% over the period, which means the Health budget grows in real terms by just 0.5%.
See more from MedicalBrief archives:
Changes to medical tax credits aimed at big earners – Crisp
Tax credits worth R25bn to be phased out to fund NHI