Medical scheme tax credits are vital for sustaining South Africa’s dual healthcare system, providing essential financial relief to millions of working-class citizens. In his recent budget speech, Finance Minister Enoch Godongwana announced that these tax credits will remain in place – an important policy decision welcomed by healthcare experts and funders.
Thoneshan Naidoo, CEO of the Health Funders Association (HFA), emphasised that tax credits are not merely a benefit for high-income earners but a vital support for ordinary working South Africans. They help more individuals stay on medical aid schemes, reducing reliance on the overburdened public healthcare system.
A common misconception is that medical scheme tax credits, which cost the government approximately R30 billion annually, primarily benefit the wealthy. However, data from the National Treasury presents a different perspective:
- 21% (R6.3 billion) of the tax credits go to individuals earning less than R250,000 annually.
- 64% (R19 billion) benefit those earning under R500,000 annually, including teachers, civil servants, tradespeople, nurses, and call centre agents.
This aligns with SA Revenue Service (SARS) figures, showing that 80% of employed South Africans fall under the R500,000 income bracket.
Naidoo said these figures highlight that medical scheme tax credits are a progressive intervention, not a privilege for the elite. He added that they offer essential support to middle- and lower-income earners, allowing them to finance their healthcare.
Reducing pressure on public healthcare
The medical scheme tax credit currently amounts to R364 per month for the principal member and first dependant and R246 per month for each additional dependant. This results in an annual personal income tax saving of R4,368 for a medical scheme member.
Naidoo argues that this system is cost-effective for the government. The R30 billion allocated for tax credits is significantly lower than the expenses the state would incur to treat those individuals within the public healthcare system.
By incentivising private healthcare, the credits alleviate pressure on state facilities and enable the government to concentrate its resources on the most vulnerable populations.
Incentives that influence behaviour
Naidoo also pointed out that tax policies often serve behavioural purposes beyond revenue collection. For instance:
- The sugar tax reduces sugar intake, fighting obesity and diabetes.
- High cigarette taxes deter smoking and reduce related health costs.
Medical tax credits, similarly, encourage individuals to stay on private medical schemes.
Some have proposed reallocating medical tax credits to finance the National Health Insurance (NHI). Naidoo rejects this notion, observing that these are not pooled funds but direct tax relief for individuals.
Even if eliminated, the revenue generated would only make a slight contribution to the NHI’s substantial funding needs.
Supporting a balanced health system
The government supports a balanced healthcare ecosystem by maintaining medical scheme tax credits. This approach ensures financial sustainability for private healthcare while safeguarding public health resources for those who depend on them most.