2012 Budget Speech – Health Focus
Prepared by Alexander Forbes Health, Technical and Actuarial Consulting Solutions (TACS)
MEDICAL DEDUCTIONS CONVERTED TO MEDICAL TAX CREDITS
The conversion of medical deductions to medical tax credits comes into effect on 1 March 2012. These reforms are aimed at improving the fairness of the personal income tax system. The system of medical tax credits is a more equitable form of tax relief as it reduces a tax payer’s tax liability, whereas medical deductions reduce a tax payer’s taxable income.
The monthly tax credits to be applied from 1 March 2012 to taxpayers below 65 years are:
R230 for the first two beneficiaries
R154 for each additional beneficiary
Where medical scheme contributions in excess of four times the total allowable tax credits combined with out-of-pocket medical expenses exceed 7.5% of taxable income, they can be claimed as a deduction against taxable income. With effect from 1 March 2014, these additional medical deductions will be converted into tax credits at a rate of 25% for taxpayers aged below 65 years.
From 1 March 2014, employer contributions to medical schemes on behalf of ex-employees will be deemed a taxable fringe benefit and such ex-employees will be able to claim the appropriate tax credits.
Tax payers over 65 and those with disabilities or with disabled dependants, will be converted to the tax credit system as from 1 March 2014. Currently these tax payers can claim all medical scheme contributions and out-of-pocket medical expenses as a deduction against their taxable income, and it would appear that this would continue for the 2012/2013 tax year.
FUNDING FOR NATIONAL HEALTH INSURANCE
National Health Insurance (NHI) is to be phased in over a 14-year period beginning this year, 2012. The first five years will focus on strengthening the public sector in preparation for the new system. During this phase priorities in health spending include hospital infrastructure, the comprehensive HIV and Aids treatment and prevention programme, and expanding health professional training. To achieve this, the health sector will be allocated an additional R12.3 billion over the next three years. Key allocations include the following:
R1 billion is allocated for NHI pilot projects and increasing primary health care visits;
R450 million has been provided to upgrade 30 nursing colleges;
R426 million is allocated for the initial rebuilding of five major tertiary hospitals; and
R968 million is made available over the medium term, for the extension of antiretroviral treatment at the CD4 count threshold of 350.
Over the medium term, general taxes will remain the primary financing mechanism however over the longer term, the NHI system will require funding over and above current budget allocations. Funding options to be considered will include a payroll tax (payable by both employees and employers), a higher value-added tax (VAT) rate, a surcharge on taxable income, or some combination of these. The use of co-payments or user charges will also be explored.
It is expected that an additional amount of approximately R6 billion will be needed in 2014/15 which is not currently provided for in the Medium Term Expense Framework (MTEF). Longer-term financing requirements will depend on the progress of reforms and health service delivery capacity, which cannot yet be reliably determined. Preliminary estimates suggest that full implementation of NHI by 2025 may require public health financing to increase from the current 4% of GDP to 6%.
The Minister of Finance emphasised that an appropriate balance in the funding of NHI would be necessary to ensure that the tax structure remains supportive of economic growth, job creation and savings.
A discussion paper on the funding options for NHI and a review of associated transition issues, including the role of medical schemes, is expected to be published by the end of April 2012.
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