The recently released 2017 Economic Freedom of the World (EFW) report, published by the Fraser Institute, shows that South Africa continues to slide down the global rankings. In 2000, South Africa was ranked 46th. Now it is ranked a dismal 95th. This nearly two-decade, steady decline in economic freedom has led to weak levels of economic growth, low productivity, reduced levels of per capita income, and a staggering and still-growing rate of unemployment.The foundations of economic freedom are a personal choice, voluntary exchange, freedom to compete and security of privately owned property. One of the key objectives in compiling the EFW index is to establish whether relationships exist between economic freedom and economic growth. The findings unambiguously support the fact that economic freedom is strongly related to economic prosperity – countries that are economically free tend to grow faster and to be more prosperous.In 2015, nations in the top quartile of economic freedom had an average per-capita GDP (measured in constant PPP adjusted terms) of $42,463 (R573,250), compared to $6,036 (R81,486) for nations ranked in the bottom quartile. In the top quartile, the average income of the poorest 10% was $11,998 (R161,973), compared to $1,124 (R15,174) in the bottom quartile. This shows that economic freedom benefits everyone. Both poor and rich get richer together. Interestingly, the average income of the poorest 10% in the most economically free nations is almost twice the average per capita income in the least free nations. People in freer countries can also expect to live longer. Life expectancy in the freest countries is 80.7 years compared to 64.4 years in the least free nations.That high levels of care are available in countries that enjoy higher levels of economic freedom has to do with the fact that they embrace institutions that respect personal and economic freedoms. Here, South Africa is losing ground because the foundations of economic freedom in the country are neither well established nor strongly protected. Our institutions remain weak and vulnerable to corruption, undermining the rule of law and prospects for stable, long-term economic development.
Rather than measures proven to increase more healthy and wealthy outcomes for citizens, the South African government seems intent on increasing state control over all aspects of our personal lives. Consider, the government’s proposed National Health Insurance (NHI) scheme. To fund the NHI scheme, there are plans to raise taxes on the already overburdened tax base and introduce a mandatory payroll tax, payable by everyone employed in the formal sector.
The government also plans to remove the medical scheme tax credits that were introduced to encourage individuals to pay more towards their own medical expenses and not rely on publicly provided medical care. Research by Econex estimates that approximately 1.9 million people (21.8% of medical scheme beneficiaries) will lose their private medical scheme membership if the tax credits are removed. SARS documentation demonstrates that a single medical scheme member would lose R303 a month, or R3,636 a year, and a family of four would be out-of-pocket by R1,014 a month or R12,168 for the year.
Cash-strapped individuals will likely no longer be able to afford to pay both a voluntary private medical aid contribution and a mandatory NHI payment; those unable to pay both will have little resort but to endure the lengthy delays and possibly risk a poor health outcome by turning to the already largely dysfunctional and inefficient public health service.
Instead of promising ‘free healthcare for all’, government should concentrate its efforts and scarce taxpayer resources on those people who truly cannot afford healthcare. Rather than being the provider, it should act as financier and purchase for the poor the best possible care available by enlisting the support and help of the private sector and contracting out to them those services that they can provide more efficiently. Empowering individuals to choose their healthcare options and encouraging private sector competition is the best way to utilise scarce resources efficiently.
It is only with economic growth and increased incomes that South Africans will gain greater access to medicines and hospital services. Government, therefore, should focus on adopting policies that foster economic growth by increasing the level of economic freedom in the country. The evidence gathered from around the world that greater levels of economic freedom and increased wealth lead to better health outcomes is clear and unambiguous.
Jasson Urbach is director at Free Market Foundation