Bucket loads of cash needed to fund government’s populist pipe dreams

South Africa’s Cabinet seems wholly unconcerned with where it will find the bucket loads of cash needed to fund populist programmes such as National Health Insurance (NHI) and basic income grants. The country’s dwindling taxpayer base is concerned that the first of the two policies is being fast-tracked despite government having no idea of its eventual price tag. They are also worried that the implementation is destined to fail due to the triple-whammy of human resources and infrastructure constraints coupled with the state’s dire track record in administering complex institutions.

Carry on regardless

“There is full consensus in the ruling African National Congress (ANC) that NHI must be implemented,” said political analyst Justice Malala, during a 1 October presentation to the 2020 Morningstar Investment Conference. Latest reports suggest that the Minister of Health is pushing ahead with NHI regardless of concerns over its impact on the private and public healthcare sectors and the fiscus. In the absence of a clear costing from government, taxpayers are forced to scan news reports for their facts and figures. Various industry commentators have estimated the scheme could cost anywhere between R165 and R450 billion per year to implement and run. Affordability is by no means the only problem!

There is also the small matter of the 32227 written and 32634 emailed public comments that Parliament’s Portfolio Committee on Health is supposed to consider before pushing ahead; a process that will likely be abandoned due to time constraints. The public comment processes on contentious matters like land expropriation and NHI are illustrative of how unworkable democratic decision-making can be. It is impossible to document all the flaws in the latest public comment process; but we can include the fact only 60000 of the country’s 35 million eligible voters have shared their views; that none of these commentators had perfect information; that commentators at public hearings faced undue political pressure; that many participants had nothing to lose; and that nobody knew what the personal financial consequence of being for or against NHI might be.

Support or opposition; but for what?

The public was asked to indicate is support or opposition to NHI without being advised of what healthcare benefits they might receive from the scheme; the impact of NHI on their existing health insurance policies and medical scheme membership; what the scheme would cost the country; and how it would be funded, among countless other unknowns. It is one thing to ask an individual whether he or she supports NHI, and quite another to ask whether he or she will support NHI if it means paying an extra R20000 in annual income taxes, for example.

The basic income grant being proposed by the department of social development is easier to cost; but just as unaffordable. Malala noted that an income grant programme, more details of which will be shared in March 2021, could cost the country around R42 billion per month, assuming a basic payment of R1270 was allocated to each of 33 million South Africans aged between 18 and 59. The number could be managed down by means testing those already in employment, and reducing payments to the 17 million or so South Africans who already receive some form of social grant. The question remains how government intends implementing these cost intensive projects at a time when the country’s debt to GDP measure is soaring. Our gut feel is they will play Oliver Twist to the taxpayers, demanding “Please sir, I want some more”. We should be so lucky they use ‘please’ and ‘sir’ in their one-liner.

Another 2.2 million jobless

“The latest Statistics SA figures show that 2.2 million South Africans lost their jobs in the second quarter of 2020, taking us to 42% unemployment on the expanded definition,” said Malala. He added that the country entered the COVID-19 pandemic with its back to the wall, having suffered through ongoing load shedding since 2007; a downward trend in business confidence since 2006; and various ratings agency downgrades, culminating with the Moody’s decision in March of this year. “The key thing for South Africa is not that the lockdown and pandemic was so devastating; but that it underlined and exposed the failures of successive administrations since 1994,” he said, before warning that the longer term economic and socio-political consequences of pandemic were dire.

Over the next six to 18 months South Africa will struggle with poor economic growth; rising unemployment; collapses in pension fund values; and business failures, to name a few. “A lot of political pressure is being brought to bear on the ANC, and more specifically President Cyril Ramaphosa, to deliver relief from the hard knock of pandemic,” said Malala. This explains the acceleration of the NHI programme, which emerged as a front-runner for future social spending during the ANC’s last elective conference at Nasrec, December 2017. Government, spearheaded by the Health Minister and President, are now using South Africa’s healthcare outcomes through pandemic to support their NHI vision. Both remain committed to a full implementation of the system by 2025.

We hope they reflect on the ominous rumblings from the trenches. A recent survey by the South African Medical Association shows that up to 38% of its members would consider emigrating if NHI were fully implemented. And a mere 15% of respondents felt it would be possible to successfully implement NHI as currently proposed. Even if funding is found, and we assume it will be, there remain serious doubts about the state’s ability to administer the system free of corruption.

Tax increases on the cards

Taxpayers will be watching the October 2020 Medium Term Budget Policy Statement and the February 2021 National Budget with growing trepidation. “Look out for some kind of a movement in taxation; the money [for these programmes] will have to come from somewhere,” said Malala. He added that the prescribed asset issue was also back in the spotlight due to the difficulty government faced in raising additional debt. This difficulty is illustrated by the ongoing delay in finding the additional R10 billion needed to keep government’s favourite SOE, South African Airways, in business.

National Treasury offers a ‘best case’ scenario of 86% Debt-to-GDP by 2024/25. Against this backdrop it will be far easier for government to force pension funds to allocate a higher proportion of their assets to government bonds than to privatise any of its precious SOEs. “I do not see a movement towards privatisation because the populist pressure is for these entities to be kept and funded, for whatever reason … the backlash would be on the ANC selling them off rather than on continuing to put money into them,” said Malala. This cynical writer would add that there are few private sector firms who would be willing to take large stakes in any of the struggling entities that government so frequently bails out…

Not the greatest odds for success

?What does the future hold? Malala told the audience of financial advisers that South Africa had a one in four chance of side-stepping the ‘failed state’ tag. “During pandemic people have started talking about South Africa as a failed state,” he concluded. “If we look at the finances of the country and at other areas, the outlook is bleak; but if we strengthen our institutions and continue with that kind of change we have recently witnessed, there is a 25% chance we can turn things around”.