• Healthcare accounts more for than 11% of government spending
  • Zuma announced NHI in first state of the nation speech in 2009

South Africa’s cabinet has approved a policy white paper on a compulsory health-insurance plan.

“It will be funded through a central fund that will also be made available to private medical practitioners who want to participate in the scheme,” Minister in the Presidency Jeff Radebe told reporters Friday in the capital, Pretoria. “It will be phased in over the years and focus mainly on commencing in under-serviced areas.”

President Jacob Zuma initially announced the program in his first state of the nation address in 2009 and the publication of details about the financing arrangements has been postponed several times. The National Health Insurance, or NHI, will provide universal health coverage to South Africans once it’s fully implemented.

The government has established pilot districts for the proposed NHI in all nine provinces, and the Treasury set aside 18.1 billion rand ($1.2 billion) over three years in the 2014 budget review to revamp and build hospitals and clinics and other infrastructure for the program. Spending on health will account for more than 11 percent of government expenditure in year through March 2016 will grow at 8.3 percent a year over the next three years, the fastest-growing expenditure item after home affairs and debt-service costs, according to the mid-term budget released in October.

Revenue Projections

The announcement comes just two days after Zuma unexpectedly replaced Nhlanhla Nene as finance minister with lawmaker David van Rooyen, raising investors’ concerns about the nation’s fiscal path. Nene cut back tax-revenue projections in the mid-term budget because of slowing growth forecasts and said spending limits will remain in place to ensure sustainable public finances.

On Dec. 4, Fitch Ratings Ltd. downgraded the country’s credit assessment to BBB-, one level above investment grade, while Standard and Poor’s cut the outlook on its equivalent rating to negative, bringing the nation a step closer to junk status. Both companies cited risks to the fiscal outlook, among others.

South Africa raised income taxes for the first time in 20 years in the February budget, targeting all except the lowest income earners, to help plug a revenue shortfall. Nene told reporters in October the option of raising value-added tax “has always been open.” VAT has been at 14 percent since 1993.

A panel appointed by the government to review the nation’s tax system, known as the Davis Tax Committee, recommended raising VAT rather than increasing individual and company taxes. Only 18.2 million people, or one-third of the population, are registered for income taxes.

A revamp of the health-care system may increase competition for private hospitals owned by Mediclinic International Ltd., Netcare Ltd. and Life Healthcare Group Holdings Ltd. as the government drives down prices.

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