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'NHI plan needs economy to grow 7%'

Oct 20 2010 11:46 Sapa

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Johannesburg - The proposed National Health Insurance (NHI) scheme will require that the South African economy grows by an "improbable" 7% a year, consultancy Econometrix said on Wednesday.

Implemented in its current form, NHI could squeeze out other forms of spending such as education, housing and productive infrastructure.

Its analysis comes a day after Reserve Bank Governor Gill Marcus said she expected growth this year to be about 2.8%, increasing to 3.2% in 2011.

Econometrix said the proposed NHI budget released by the ANC at its recent national general council meeting in September meant that the country would not only have to achieve a growth rate of 7%, but sustain it for 13 consecutive years.

"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," said Econometrix's Tony Twine.

"[This] would result in health care expenditure consuming between 22.8% and 28.2% of all government spending and up to 8.5% of GDP by 2025."

In the lower growth level scenarios outlined in the ANC document, healthcare spending would reach nearly 40% of total government revenue by 2025, while at 3.5% it would increase to 28% by the same date.

Government would have to raise the additional funds for the NHI either by increasing taxes or taking on more debt.

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," Twine said.

"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. "

Twine said a crucial early indicator of government's intentions around the NHI proposal would be the Medium Term Budget Policy Statement to be presented by Finance Minister Pravin Gordhan on October 27.

gill marcus  |  nhi



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