The National Treasury has pushed back against the health department’s efforts to phase out medical tax credits, increasing them in line with inflation for the first time since 2023 and proposing the eligibility net be expanded.
The health department told parliament last year that it wanted medical tax credits to be phased out to help fund National Health Insurance (NHI), potentially starting with high-income earners as soon as April.
Medical tax credits apply to medical scheme contributions and out-of-pocket medical expenditure.
The Treasury’s decision is in line with finance minister Enoch Godongwana’s comments shortly before he delivered the medium-term budget policy statement in November, when he said eliminating medical tax credits would be tantamount to an attack on the middle class.
Its move comes soon after the government’s undertaking not to implement NHI until the Constitutional Court has ruled on the legal challenges to parliament’s public participation process when it considered the NHI Bill, which was signed into law by President Cyril Ramaphosa in May 2024.
The government’s concession was made an order of court on Tuesday.
Medical tax credits provide all eligible beneficiaries with the same tax relief regardless of their income. They include a tax credit for medical scheme contributions, now set at R364 a month for the first two members and R246 a month for each additional dependant, and a medical expenses tax credit for out-of-pocket healthcare expenditure. As the tax credits have been frozen at these levels since 2023/24, they have shrunk in real terms.
The Treasury’s deputy director-general for tax and financial sector policy, Chris Axelson, said its latest analysis on the impact of withdrawing medical tax credits had reached similar conclusions to previous work highlighted in the 2017 medium-term budget policy statement, which showed most of the individuals who benefited were low and middle-income earners.
“Because it’s a credit with the same value to every individual, even if you took it away from very high-income earners it wouldn’t generate that much additional revenue,” he said. “We are a little concerned about potential impact on low and middle-income earners if it is reduced or withdrawn,” he said.
The government provided R29.53bn in tax credits to medical scheme members in 2023/24, and R8bn more in tax credits for qualifying out-of-pocket healthcare expenditure, according to the Budget Review.
In addition to increasing medical tax credits in line with inflation, the Treasury said it is proposing tax amendments that would extend the eligibility to include members of certain statutory medical schemes that did not fall under the Council for Medical Schemes.
Members of these medical schemes are consequently not eligible for the medical scheme fees tax credit under section 6A of the Income Tax Act, the Treasury said in the Budget Review. It proposes that eligibility be extended to these members, provided their medical schemes adhere to the governance and solvency requirements of the Medical Schemes Act.
It was not immediately clear to which medical schemes this would apply. Axelson said the change will benefit several thousand medical scheme beneficiaries but declined to name the schemes.
The budget sees an additional R21.3bn allocated to the provinces over the medium term to pay for doctors and other healthcare personnel, as well as goods and services.
The Medical Research Council is allocated an additional R410m to offset research funding that was withdrawn by the US last year, in line with a co-funding agreement with global donors that seeks to sustain critical HIV/Aids research programmes. The funds are not new money but come from reprioritising the national health department’s budget. A further R24m is redirected from the health department to the office of health standards compliance to enable it to fill posts and increase inspections of hospitals and clinics.
Consolidated government spending on health will marginally outpace inflation, growing at 4.2% over the next three years. The Treasury estimates inflation will average 3.3% over the medium term.
The consolidated health budget is set to grow from a revised estimate of R295bn in 2025/26 to R310bn in 2026/27. It then rises to R323.9bn in 2027/28 and R334bn in the outer year.
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