Last month, the ANC released a proposed NHI budget at its National General Committee (NGC) meeting which shows that the country would have to achieve an economic growth rate of 7% per year for 13 consecutive years to ensure that spending on NHI met the target levels of 14-14,5% of total government expenditure and 7,8% of GDP.
"It is far more likely that South Africa will experience growth of between 3,5% and 4,5% per year over the period that the NHI is implemented, which would result in healthcare expenditure consuming between 22,8 and 28,2% of all government spending and up to 8,5% of GDP by 2025," says Econometrix economist, Tony Twine.
The ANC's discussion document sets several targets, including initial expenditure on NHI which climbs to R375,5 billion by 2025 (in 2010 terms). It's budget also assumes an 8,65%pa increase in real terms for NHI spend for 13 years after 2012 and excludes the costs of running the Department of Health and Office of Standards and Compliance, which is seen as critical to improving standards in public sector hospitals.
"If GDP growth remains as low as 2% per year, as experienced during the period 1975-1995, the NHI would simply be unaffordable," says Twine. "At growth levels of between 3,5 and 4,5%, it is possibly affordable, but would compete against other high-priority government targets. Government will have to decide whether it is worth the sacrifice.
"A problematic planning point that appears to have been overlooked by the planners is that they are comparing spend on NHI to total government spending, without considering government income," he says. "The proposed NHI budget shows that the share of government income which the NHI will consume will be alarming."
In the lower growth level scenarios outlined in the document, healthcare spending would reach nearly 40% of total government revenue by 2025, while at 3,5% per year economic growth, the health spend share of fiscal revenue would increase to 28% by 2025. "This is still a remarkably high ratio level, given the starting point of 17,9% in 2012," says Twine.
Only at 7% per year GDP growth does total government spending on health sit securely within the middle teens as a percentage share of government spending.
Because the government receives income either through taxes (fiscal revenue) or via borrowing, it would have to raise the additional funds for the NHI by either increasing taxes or taking on more debt.
Increasing taxes is complex, for example, VAT collections would be instantaneous to introduce, but would impact proportionally more heavily on the poor than on the wealthy, while personal income tax surcharges would affect the wealthy more, but would take some time to generate income. Twine says increasing the general tax load too much would simply weigh down the economy, limiting its ability to stimulate growth and create jobs.
"There would also be little point in government borrowing more to fund the NHI, as government would then have to hive off more money to fund the interest repayments," he says.
The rise in healthcare spending to very high levels could open up significant economic debates, both within the ruling party and its alliance partners, as well as within National Treasury and the government departments it services, the report says.
"This moves the analysis from being one of pure economics to political," says Twine.
"The power of the Department of Health will be tested against the relative power of other departments which will each appeal to the Presidency and National Treasury to secure their own slice of the revenue pie for their ongoing political survival."
Twine says a crucial early indicator of government's intentions around the NHI proposal put to the ANC-NGC in September will be the Medium Term Budget Policy Statement, scheduled to be presented by Finance Minister Pravin Gordhan on 27 October 2010.
"This will contain revised spending data for healthcare for 2012/13 as well as a first look at 2013/14, which could reveal any plans to move towards the discussion paper budget," he says. "But policy makers will need to sharpen their pencils and perhaps cut back on some nice-to-haves in the proposed NHI if it is to be sustainable."
