The debate about medical scheme tax credits and National Health Insurance (NHI) frequently oversimplifies complex fiscal and institutional issues. This risks undermining legitimate policy goals, including equity, financial protection and the stabilisation of a mixed health system. Several claims made in an article byOlive Shisanaabout the role of medical tax credits (MTC), the interpretation of the NHI Act and the constitutional responsibilities of ministers are the result of such oversimplification and lead her, in our opinion, to erroneous conclusions.
Let us start with Shisana’s allegations that the minister of finance, in not removing the tax credits for taxpayers who have contributed to medical schemes, contravenes legislation and “contradicts the constitutional process”. She makes this claim on three grounds. First, the NHI Act was passed by the legislature in 2023 and signed into law by the President in 2024, and the law says that the NHI will be funded, in part, from the increased taxes the fiscus will receive when medical scheme tax credits are removed.
This, she says, is the will of the people and individual Cabinet ministers may not override it. However, the will of the people is primarily expressed through parliamentary elections every four years. The individual laws passed by the elected Parliament are not necessarily supported by the majority who elected the winning party and the electorate only gets its opportunity to indicate approval or otherwise when the next election comes around.
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There was a noticeable loss of electoral support for the ANC, despite the very public signing of the legislationduringthe 2024 general elections. Far from being an endorsement of the legislation, it could reasonably be interpreted as a rejection by the “collective will”. Indeed, the electorate supported other parties, many of which oppose aspects of the NHI Act, particularly as it affects medical schemes.
A major source of disagreement within the Government of National Unity since it was formed, is precisely this NHI Act and how the NHI might be funded. When governments change, especially when the parties constituting a government change, and the Cabinet changes, policies made by a previous Parliament may change too. That is constitutional democracy.
Shisana anticipated this response to her first argument in her second argument, which asserted that there had been extensive grassroots consultation across the country and that this consultation endorsed the NHI Bill, including its position on medical aid tax credits. This is disingenuous. In the first instance, the procedural validity of the parliamentary process leading up to the passage of the NHI Bill is a matter before the Constitutional Court – the argument being that the legislation was hastened throughwithoutproper consideration of the inputs made to both the national and provincial legislatures.
Second, public participation is essential, but it does not equate to universal agreement nor does it substitute for implementability assessments, costings, actuarial analysis and system-readiness evaluations – none of which have been provided by government to date. Shisana’s third criticism of the minister of finance as undermining democratic decision-making is that “(t)he minister of finance’s role is to allocate funds to implement laws passed by Parliament and signed by the president”. His failure to reallocate the MTC to the NHI Fund, she says, “creates the perception that one individual can override the collective will of the nation”.
But this misstates how South Africa’s constitutional and fiscal architecture functions. While the NHI Act contains an enabling clause regarding potential sources of funding, it does not and cannot constitute an automatic appropriation. It does not override the annual budget process.
The NHI Act, quite simply, is not amoney bill. The Constitution explicitly assigns the minister of finance (who has the sole authority to introduce a money bill) in conjunction with Parliament the responsibility for safeguarding the public finances, setting fiscal policy and ensuring budget sustainability. But budget appropriation requires legislation approved by Parliament – which is why it is called a budget “vote”.
This is a constitutional safeguard designed to prevent arbitrary fiscal decisions. It is therefore incorrect to imply that the minister can ormustreallocate credits absent an appropriation act that specifies the amount, the year and the conditions. It is the majority coalition of parties that will sign off on the budget and take responsibility for what happens to the MTC.
Intertwined with Shisana’s charges that the minister was undermining democracy and the Constitution was a second set of arguments about the equity impact of the MTC. She also argues that the MTC is itself a regressive tax, i.e. it leads to greater inequality; and furthermore, that the failure to remove it was undermining South Africa’s commitment to universal health cover (UHC).
Let us start by saying that a tapered tax credit for high-earning medical aid members is an option. But not now, while the NHI is not implemented (with a low probability of implementation), the public sector is resource-constrained and poorly managed, and absent a coherent vision for the medical schemes system. But to respond to Shisana’s misrepresentation of the equity implications: is the tax credit regressive or progressive?
The medical tax credit system was deliberately redesigned in the mid-2000s to replace the previous, regressivedeductionregime. Under the old system, higher-income taxpayers received the greatest benefit because deductions increased in value with marginal tax rates. The shift to a flat, standard-rate medical tax credit created a far more equitable structure in which all taxpayers receive the same rand-value benefit regardless of income.
For example, a family of four, at any income level, is entitled to a tax credit of R14,640 – or R3,660 per person per annum (compared with R5,587 that the government spends on current public sector users). If you have a relatively low income – say, R140,000 pa, the value of this tax credit is 10.5% of your income. If you earn R800,000, the value of the tax credit is 1.9%.
This is a highly progressive, pro-poor tax regime – noting that high-income groups actually finance the bulk of the tax credit. Conversely, removing the tax credit impacts the “middle classes” – say those above the tax threshold up to about R1-million income a year, a whole lot more than it does the upper-income groups.
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