Covid-19 fallout measures are not enough, government told
The Treasury has come under intense criticism for its muted response to the crisis
The government is grappling with the fallout from the Covid-19 lockdown with myriad of problems emerging from the capacity of the UIF to pay the new benefit and concern growing that the most vulnerable sections of the population have not been provided for.
Regulations on taxis and informal trading have been strongly criticised for being impractical and not thought through properly. Both were eased in new regulations published today.
The lockdown is now seven days old and has another 14 to run with the possibility of an extension. It has brought most of the economy to a sudden stop, putting millions out of work and depriving informal traders of their livelihood. While a total lockdown is widely agreed to be the most effective strategy to deal with the health crisis, governments around the world are bracing for the economic consequences.
Top among the difficulties in SA is the capacity of the UIF to pay out the special Covid-19 benefit to employees who will go without income for at least the next three weeks. While the fund has the resources to do so — it has R30bn immediately available in money market funds and other financial instruments — its administrative capacity is weak. It has additional investments to the value of R120bn, but 75% of this is invested in government bonds, which it will be unlikely to liquidate.
Discussions are now under way in the government to look at alternative delivery mechanisms for the Covid-19 benefit, possibly through the banking system or the SA Revenue Service (Sars). The benefit will be paid to employers to pass on to employees through payroll.
The UIF has 1.8-million employers registered. If only half of them apply for the benefit, it will need to process almost a million transactions.
The benefit is calculated on a sliding scale according to monthly earnings with the minimum payment in this case set at R3,500 a month and capped at R6,543. However, it is only available to contributors to the fund, who are formal sector workers.
Concern is mounting within the government and among nongovernmental organisations and the public that the most vulnerable, who make their living through informal economic activities, will bear the brunt of the lockdown. New regulations have now classified informal sector food stalls as an essential service, which will allow traders to receive some income.
The Treasury has come under intense criticism for its muted response to the crisis with a strong lobby both inside and outside the government arguing for additional social welfare by, for example, topping up social grants for three months.
To date, the Treasury’s measures have included only the extension of the wage subsidy for youth employment to all employees at a rate of R500 a month. It also allowed employers to defer the payment of personal income taxes to Sars. Together the measures amount to only R15bn in total. Finance minister Tito Mboweni has said he will raid departmental budgets to augment the response to the Covid-19 crisis or turn to the World Bank and IMF for health funding.
Dean of commerce, law and management at Wits university Imraan Valodia said the economic response to the crisis "is not sufficient".
"We are going to need a lot more support for firms and for people who make a living from informal economic activities. The question is, how? There are two schools of thought: do it quickly, using the social grant system, or spend a bit of time designing something that is more targeted ."
A group of international academic economists including Murray Leibrandt, the University of Cape Town’s pro-vice chancellor on poverty and inequality, on Tuesday published a paper making the case for topping up the child support grant, and providing evidence that the grants coincide closely with informal sector workers and the poorest section of society.
Wits economist Lumkile Mondi said the Treasury’s response is far too muted. "We can afford to do more and should do more. We will sort out the economy later."
A group of 250 left-leaning economists, including co-director of the Institute for Economic Justice Neil Coleman, wrote to President Cyril Ramaphosa this week urging him to implement a basic income grant or top up social grants.
This week, the Treasury and the Reserve Bank attended a zoom conference with Harvard economist Ricardo Hausmann, who advises several emerging markets through the Harvard Growth Lab. Hausmann said fiscal support is vital both as an immediate measure and to recover after the crisis. This is no time to worry about prudential norms, he said, such as debt to GDP ratios and ratings agencies. But countries with limited fiscal space should "know their limits and work around them".