COMMENT

Mitigating the economic fallout from Coronavirus

John Steenhuisen says govt now needs to do everything it can to assist as many businesses as possible to survive

STRAIGHT TALK: Mitigating the economic fallout from Coronavirus

21 March 2020

Covid-19 will deliver a massive, sudden and potentially deadly blow to many businesses in our economy – indeed, this has already begun. This has introduced an unprecedented challenge at a time when our economy was already in recession. The damage can and must be mitigated.

Government now needs to do everything it can to assist as many businesses as possible to survive this “sudden stop” situation so that they are still operating and can recover fully when the Coronavirus threat blows over in four to six months’ time, as it is generally expected to do.

On Sunday, President Ramaphosa showed decisive leadership in announcing a virus containment plan. He now needs to match that with a comprehensive economic support package that takes as much financial pressure as possible off businesses and households in the coming months.

Otherwise our national effort to limit the damage from Covid-19 will come at a terrible, perhaps even unjustifiable, economic cost. Small businesses will not survive and the households that rely on them will suffer enormously without support from government. The stringent curbs on restaurants for example, introduced on Wednesday, will be crippling to those in that sector.

Even in our stressed economic environment, there is much the government can do. The DA has made several suggestions.

Funds for disaster management and economic support can be freed up by cancelling the planned R16,4 billion bailout of SAA. It is surely unthinkable at a time like this to bail out failed SOEs while thousands of successful small businesses face ruin.

We need a nationwide loan forbearance programme giving a four-month payment “holiday” on loans for small and medium business, in particularly property, business and vehicle loans. Extending the term of loans by four months will allow borrowers to pause their payments over the next four months.

This will help small businesses maintain the cash flow necessary to stay open and keep paying their employees without the need for each business to negotiate with their banks individually. Many other countries, including China, France, the UK and Canada have taken a similar approach.

A loan payment “holiday” will enable rental payments to be paused for four months to help businesses survive. Those property owners who rely on the income from non-bonded properties should give rental reductions or extensions wherever possible, and government should encourage them to do so.

Small businesses would get immediate relief if the VAT threshold is raised from R1 million to R2 million. And any VAT refunds owed to small businesses should be repaid immediately.

Government has already adopted one of our proposals, which is to allow businesses to skip Unemployment Insurance Fund payments for the coming months and expand UIF coverage to better protect affected workers.

This should be extended to pause payments to the Worker’s Compensation Fund too, without affecting worker’s cover under the fund. Payments could be recovered when the economy bounces back.

Local governments that can must be encouraged to offer rate payment holidays over the next few months. Employers of domestic workers must be encouraged to continue paying their staff through these months if possible, even if they prefer staff to stay at home or if staff require more sick leave than is due to them.

Had government saved for a rainy day, this would have been the time to undertake massive government spending of the sort being undertaken now in the US and UK, where 12% and 15% of GDP respectively has been allocated for relief.

But as our economy is already in a debt trap, government has very little room for fiscal manoeuvre. Furthermore, we can expect tax revenues and growth to decline still further in the coming months. This makes a comprehensive economic support package of the sort outlined above all the more urgent.

As a country, we need to pull together to assist all households to weather this storm. Unrecoverable economic collapse is in no one’s best interest.

Warm regards,

John Steenhuisen

DA Leader