The World Health Organization’s mechanisms for increasing the health sector budget : the South African context

Abstract

South Africa (SA) has limited scope for raising income taxes, and the proposed National Health Insurance (NHI) scheme will necessitate growth in the health sector budget. The NHI White Paper suggests five funding scenarios to meet the expected shortfall. These scenarios are a mixture of a surcharge on taxable income, an increase in value-added tax and a payroll tax. Five alternative options, suggested by the World Health Organization, are interrogated as ways to decrease the general taxation proposed in the White Paper. The five mechanisms (corporate tax, financial transaction levy, and taxes on tobacco, alcohol and unhealthy foods) were chosen based on their fund-raising potential and their mandatory element. A literature review provides the information for a discussion of the potential costs of each mechanism. Within specific assumptions, potential budgetary contribution is compared with the requirement. First, raising corporate tax rates could raise enough funds, but the losses due to capital flight might be too much for the local economy to bear. Second, a levy on currency transactions is unlikely to raise the required resources, even without a probable decrease in the number of transactions. Third, the increase in the tax on tobacco and alcohol would need to be very large, even assuming that consumption patterns would remain unchanged. Lastly, a tax on unhealthy food products is a new idea and could be explored as an option – especially as the SA Treasury has announced its future implementation. Implementing only one of the mechanisms is unlikely to increase available funding sufficiently, but if they are implemented together the welfare-maximising tax rate for each mechanism may be high enough to fulfil the NHI scheme’s budgetary requirement, moderating the increases in the tax burden of the SA population.