THE African National Congress's (ANC's) proposals for funding National Health Insurance (NHI) will mean doubling personal taxes and could see effective marginal tax rates for those earning R2m a year rise to 72%, according to independent health economist Alex van den Heever. Van den Heever's comments add to growing debate about the feasibility of the goals put forward by the ANC in its discussion document on NHI, released at its national general council in September. He has cast doubt on the financial assumptions made by the ANC. Van den Heever's analysis is published in the latest edition of the annual SA Health Review. The ANC is proposing an NHI fund which would collect revenue and purchase health services for the country. It plans to pay for these by raising public health expenditure from 3% of gross domestic product (GDP) to 8%, and using higher taxes to raise the extra money. Van den Heever argued that this would place an untenable strain on households. According to the ANC's NHI discussion document, the extra 5% of GDP for healthcare expenditure will be raised from a new earmarked tax framework and a general increase in taxes, which could include higher personal taxes and VAT. The new system should be phased in from 2012, starting with earmarked taxes that will add 2% of GDP to funds already allocated to the public health budget. Van den Heever said that as the taxable income of taxpayers amounted to roughly 24% of GDP, an amount of 5% of GDP raised from existing taxpayers would require a 20% increase in taxes if distributed proportionately. This would require a doubling of existing personal taxes from an average of 20,4% presently to 41,2%. A worker earning R154 000 a year would see their effective tax rate change from 14,5% to 29,2%, assuming that the government applied a progressive tax regime, he said. However, if a proportional tax was applied, this worker's effective tax rate would rise to 35,3% - roughly the level currently paid by people earning in the region of R2m. The ANC's policy adviser on NHI, Tebogo Phadu, said Van den Heever was on a "misinformation warpath" - not just critical of NHI, but anti-NHI. He said most middle-class South Africans were burdened by the high costs of medical aid contributions and that what the NHI proposed was not more burdens for the middle-class, but an evenly spread-out contribution. He added that the South African Revenue Service administered huge resources at an administrative cost of 3%, and this was the aim of the NHI.

Tamar Kahn: Business Day, 9 December 2010