Increasing the fiscal space for health

For countries that aspire to achieve the goal of Universal Health Coverage, the question of how to increase funding for health is of fundamental importance; external sources such as donor funding can be unstable and unsustainable, and insurance schemes often exclude the most poor and marginalised populations. Ensuring ‘health for all’ requires substantial increases in funding from domestic sources in a sustainable and equitable manner.

One way of increasing revenue is through improved tax collection and larger total government budgets. Recent evidence from South Africa, Kenya and Lagos State in Nigeria, shows that it is possible to increase tax revenue without raising tax rates, by expanding the tax base and improving the efficiency of tax collection systems.

What has been more challenging, however, is ensuring that this additional revenue is allocated to the health sector. In all three countries, health’s share of the government budget declined, despite economic growth and increased government revenue. The graph below illustrates this for South Africa over a period when total government revenue more than doubled.

Why was this so, when all countries demonstrated political support for improving health systems? In South Africa, for example, health sector reform was a prominent part of the ANCs election platform and remains part of the ruling party’s manifesto to this day.

The South African case suggests that the answer lies in the complex interplay between economic, political and administrative issues. Fiscal policy in the late 1990s reined in public expenditure and required rapid servicing of debt, and subsequently prioritised other sectors, squeezing out social sector spending. At the same time, government health officials did not always have the political clout or technical capacity to argue for larger health allocations during budget development processes at both the national and provincial levels, and the Treasury did not trust the health sector’s ability to deliver services efficiently.

In recent years South Africa has increased health sector spending; however, its experience of under-investing in health at a time when the HIV/AIDS epidemic began to emerge provides some important lessons for health policymakers in other countries.

Ministries of health need to develop clear strategies for defending health budgets and negotiating larger allocations during budget negotiations at both national and provincial/state levels. This includes demonstrating the economic and social benefits of health investments, and the debilitating effects of underfunding health services. Given that efficiency is a key concern of Treasuries, it is important to develop the capacity to promote and document good performance and efficient use of resources.

References and further information:

• Working paper: Increasing tax revenue and its impact on financing public health care in South Africa
• Policy brief: raising domestic resources for health: can tax revenue help fund Universal Health Coverage?
• Poster: Increasing the fiscal space for health: the experience of Kenya, South Africa and Lagos State (Nigeria)

RESYST researchers Kara Hanson and Jane Doherty will be participating in a session on 'Fiscal Space for Health: Mobilizing and Efficiently Using Domestic Funds' at the Prince Mahidol Award Conference, in Bangkok, Thailand, on Friday the 30th of January 2015.