Resource allocation and health financing

The financial sector is traditionally under-taxed relative to the rest of the economy, so it is ideally suited as a source of taxes that can be used for global health, according to this brief. Taxes on the sector are also predominantly progressive, falling on the richest institutions and individuals. Harm Reduction International (HRI) proposes a financial transaction tax (FTT) that collects a tiny percentage (between 0.5% and 0.005%) of the value of each financial product that is traded. An average tax of just 0.05% on transactions (such as bond and share sales) could raise as much as US$409 billion a year, HRI notes, significant funding for disease responses and health system strengthening in poorer countries. HRI cautions that the FTT would be in addition to - not instead of - government commitments to overseas development assistance, so it could help bridge the resource gap that currently exists to achieve the Millennium Development Goals.

From 9 to 13 July 2011, members of the Future Health Systems consortium gathered in Toronto, Canada, to participate in the 8th World Congress on Health Economics (iHEA 2011). Following a keynote address that considered the risks of a polarised debate between private or public health care, a presentation considered the future of working with health markets. The focus of the Congress was how to deliver quality health services. Participants argued that ensuring quality in inequitable contexts requires the skillful combination of commodities with knowledge. With this in mind, two panels were convened to look at how both supply side and demand side factors can be altered to improve quality of health care, in terms of both ethics and economics.

According to AFRODAD, tax revenues are, on average, lower in developing countries than in rich countries; the average revenue in African countries was approximately 15% of GDP in 2008. Hence the argument that if developing countries were able to collect sufficient tax revenues, they might be able to increase their independence, the provision of social protection, infrastructure and basic services such as education and health care which are crucial for development. The two reports on Mozambique and Zimbabwe reveal that mobilising domestic resources as a means to financing development has become an important development issue, a shift from the past emphasis on financing development from aid and external borrowing. For a long time mobilising domestic revenue has been neglected, despite being a better long-term option, AFRODAD argues. The reasons for this included the inherent pessimism about raising revenue, a prevalent ‘small-state’ ideology and a preference for foreign aid-led solutions. AFRODAD proposes that progressive taxation should play an important role in shaping the distribution of benefits from higher-income citizens to those most in need in a country. The reports also examine the various complexities surrounding taxation as a development finance mechanism in the two country cases including the current tax framework, the amount and extent of tax evasion and more specifically tax incentives and governance in various sectors of the economy. They conclude with policy and institutional recommendations to the governments of Mozambique and Zimbabwe – and civil society – to refine their tax systems.

South Africa’s provincial health departments have dramatically improved their financial management, according to Treasury officials. The nine departments collectively under-spent by US$380 m. in 2010, reversing the trend which saw them run into the red to the tune of $350 m. in the fiscal year 2009-10. The provinces had a combined health budget of $14.7 bn in 2010. This reduction reduces pressure on the Treasury to bail out cash-strapped provinces, a measure it has been loathe to consider for fear of sending the wrong message to provinces that have failed to manage their resources. However, these improvements can mask overspending on some areas at the expense of under- spending on others. The Treasury’s figures show provincial health departments collectively overspent on personnel budgets, but under-spent on capital assets and goods and services in 2010. This created the risk that staff costs might be crowding out expenditure in other critical areas, says the Treasury. It is calling on the government to look carefully at the reasons for underspending in each province, and ensuring that departments are aiming for savings such as negotiating cheaper medicines or more competitively priced tenders.