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OPINION | Cut SAA bailout to fight coronavirus

Mar 20 2020 12:56
Geordin Hill-Lewis

Let there be no doubt that the Covid-19 health disaster will also mean a full-scale economic recession with devastating consequences for thousands of businesses and millions of employees.

For many, the guillotine has already fallen. I’ve received heart-rending messages from B&B owners who have had every one of their bookings cancelled, food truck owners with no events to go to, cake bakers with no parties to bake for, and many others.

While we welcome the decisiveness with which government has acted to contain the virus, this has not yet been met with an equally decisive economic response. 

An economic support package is urgently needed that helps businesses, particularly small and medium businesses, to ride out this storm without laying off staff or being force to close down. 

Our economy can get through this. If we act quickly, with a clear plan, we will look back on these months as a time when South Africa showed its very best.

I’ve written to Finance Minister Tito Mboweni to pledge my full support to him in the many sombre responsibilities that the National Treasury will have to bear.   

I have also proposed proactive steps that government could take immediately to support the economy in this crisis: 

1) Free up funds for disaster management: 

At this time, it is unthinkable that redundant SOEs like SAA will receive a bailout of R16.4 billion, as is proposed in the current budget, while the health budget is to be cut by R3.9 billion.

This SAA bailout should be cancelled immediately and the budget amended to allocate this money to disaster relief, and to provide for the essential equipment that our health officials will surely need in the coming weeks.

We will need more ventilators, masks, sanitiser, hospital beds, tents and much more besides. We do not need to be funding SAA, and it would be immoral to do so now.

2) Loan forbearance: 

For the economic survival of small businesses, we propose a nation-wide four month payment holiday on loans for small and medium businesses, in particular property loans, business loans and vehicle loans.

By extending the term of loans by four months, and allowing borrowers to pause their payments for those months, businesses and the families they support will receive immediate and very significant financial relief. This will help small businesses maintain the cash flow necessary to stay open and keep paying their employees.

It will act as a form of ‘bridging finance’ for these businesses, without each business needing to negotiate terms with their banks individually. 

Businesses are already flooding banks with requests for payment holidays. Instead of waiting for the flood of requests in the coming weeks, the government, along with the Reserve Bank and the Banking Association should act proactively and announce these relaxed payment terms now. 

This is fast becoming the preferred intervention of governments across the globe. China, France, Italy, the United Kingdom, several Gulf countries, Canada and others have all enacted programmes similar to this. 

3) Rental forbearance: 

Most small businesses operate from rented premises. Landlords can often not afford to relax these rental payments, because the properties themselves are bonded. If a loan payment holiday programme is enacted, then rental payments can also be paused for four months to help businesses survive.

There are of course some property owners who rely on the income from their properties, even if they are not bonded. In these cases, a pause in rental payments, or a reduction in rental payments, would need to be negotiated on a case by case basis. Even so, it would still help for the government to make a statement calling on owners to demonstrate forbearance wherever possible. 

4) Raise in VAT threshold, and pause in UIF and Worker's Compensation Fund payments: 

The Department of Labour could pause payments for UIF and the Worker’s Compensation Fund by small businesses for four months, without affecting workers' cover under these funds. Many businesses pay tens of thousands of rands to these funds, and this money would be valuable cash flow support to those businesses during this time. Payments could be recouped when the economy rebounds. 

The Compensation Fund currently has R50 billion in assets, and pays out roughly R4.5 billion in claims each year. Our assessment is that The Fund could absorb a single payment deferment this year. Similarly, the UIF currently has R160 billion in funds, and could comfortably absorb payment deferments for the next four months without affecting workers’ cover. 

Now is also the time to raise the VAT threshold for small businesses, from R1 million to R2 million. This would give immediate relief to small businesses.

South Africa will not be the same after Covid-19. If we work together, plan carefully, and help one another, this will be our finest hour. We cannot let our small businesses face the full force of the devastation alone. We must come together to help them in any way we can, by announcing a comprehensive economic support package. If we do, we can bounce back quickly once we have beaten this virus.

Geordin Hill-Lewis is a Democratic Alliance MP and the party's spokesperson on finance. Views expressed are his own.   

democratic alliance  |  economy  |  coronavirus
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