Godongwana's Budget Boosts Medical Tax Credits, Sidestepping NHI Funding Plan in South Africa

Finance Minister Adjusts Medical Tax Credits Amid NHI Uncertainty

South African Finance Minister Enoch Godongwana, in his 2026 Budget Speech delivered on February 25, 2026, announced an inflationary increase in medical scheme tax credits, marking the first adjustment in two years. This decision has significant implications for the funding model of the proposed National Health Insurance (NHI) scheme, which had previously sought to scrap these credits as a primary source of revenue.

The medical tax rebate for the first two members of a medical scheme will increase from R364 to R376, while for additional members, it will rise from R246 to R254. This adjustment provides some relief to approximately nine million South Africans on medical aid, many of whom are low- and middle-income earners.

NHI Funding Plan Faces Setback

The Health Department had previously indicated that phasing out medical scheme tax credits could redirect an estimated R33 billion annually towards the NHI. However, Minister Godongwana's move to increase these credits, rather than abolish them, signals a pragmatic response to the current legal and practical challenges facing the NHI.

The Minister clarified that the decision was a direct consequence of the legal uncertainty surrounding the NHI, which is currently subject to 14 court challenges. He stated that the adjustment should not be interpreted as a retreat from the government's commitment to universal health coverage, but rather a necessary step while the legal processes unfold and the scheme's design and rollout plans are still being finalized.

Legal Hurdles and Ongoing NHI Allocations

The rollout of the NHI has been temporarily halted, with President Cyril Ramaphosa and Health Minister Aaron Motsoaledi agreeing not to proclaim any provisions in the legislation until the constitutional challenges are resolved. This legal limbo has created a need for interim measures, such as the continued support for medical scheme tax credits.

Despite the pause in its full implementation, the 2026 budget still allocates approximately R9.3 billion to the NHI. This funding includes both direct and indirect grants, earmarked for ongoing background work such as testing reforms, improving primary healthcare facilities, and infrastructure upgrades. This allocation represents about 3% of the overall healthcare funding for the year.

Treasury's Stance on Tax Credit Beneficiaries

Analysis by the National Treasury has consistently shown that the majority of beneficiaries of medical tax credits are not high-income earners. Withdrawing these credits would disproportionately affect low- and middle-income households, potentially pushing hundreds of thousands off their private medical schemes and increasing the burden on the already strained public health system. This understanding underpinned the Finance Minister's decision to maintain and adjust the credits, prioritizing the affordability of healthcare for a significant portion of the population during this period of transition and legal review.