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146 Fighting the Diseases of Poverty
waive VAT on all medicines. VAT is counter-intuitive in the sense
that if one of government’s primary objectives is to have a
healthy and productive workforce, surely it does not want to tax
the sick and vulnerable. The VAT received by government on
pharmaceuticals is relatively insignificant. However sick people
could use the money that would have been spent on VAT for a
number of beneficial alternatives, including food.
According to the latest estimates by the official government
statistical agency, Statistics South Africa (SSA), approximately 26
per cent of the South African labour force is unemployed. If
discouraged work seekers are also included, this figure jumps to
approximately 41 per cent. The consequence of mass
unemployment is that there are large numbers of individuals
that currently live in extreme poverty. Indeed, it is estimated
that there approximately 5 million people in South Africa live on
less than a dollar a day. Therefore, it is not unreasonable to
assume that many of them simply cannot afford to buy even
basic pharmaceutical drugs. While the government claims to
take responsibility for the health care of the indigent, it is
obviously not capable of meeting unlimited demands.
How do we remedy this situation? In the long run, the only
way to increase access to medicines is through increasing the
wealth of the citizens of a country and this is only possible
through economic growth. In the short term, the government
can substantially improve its distribution of drugs by privatising
the distribution process and reduce
waiting times by simply approving drugs that have already been
approved for use in developed countries. Finally, the South
African government’s preferred policy of price controls will not
increase access. On the contrary, it will simply reduce supply by
eroding the incentives of potential suppliers.
Jasson Urbach is a research economist with the Free Market
Foundation (Southern Africa) and assistant director of the health
advocacy group Africa Fighting Malaria.