Government’s Covid relief package is a day late and a dollar short
On Wednesday, finance minister Tito Mboweni gave meat to the bones of the president’s recently announced third wave relief measures. Unfortunately, this provides only half the needed emergency relief, an amount the Institute for Economic Justice (IEJ) estimates at R70bn for the short-term rescue of businesses, workers and households.
According to the National Treasury, R36.2bn in new spending is provided, together with a further R2.65bn in “reprioritisation” (moving existing funds around). In addition, there is R5.3bn from the Unemployment Insurance Fund (UIF) to help affected businesses pay wages via the temporary employer/employee relief scheme (Ters).
The minister of trade, industry & competition, Ebrahim Patel, announced R1.4bn in reprioritisation from the Industrial Development Corporation and R200m from the National Empowerment Fund to support distressed businesses. Whether these amounts are contained in the R2.65bn of reprioritisation is unclear.
The lion’s share of the funds announced by the Treasury — R26.7bn — goes towards the reintroduction of the R350 social relief of distress (SRD) grant until March 2022, aimed at unemployed adults not receiving other grants. This is muchneeded relief in the face of a socioeconomic crisis. Other allocations go to the police and defence force (R950m); Sasria, to support insurance payments (R3.9bn); tax incentives (R5bn); and small business support (R2.3bn).
It is welcome that the majority of the package consists of new funds injected into the economy. This comes from the SA Revenue Service’s higher than expected revenue collection, estimated to be more than R60bn.
However, the package fails to grapple with the scope of the impact of the lockdown-induced economic and social crisis, which has exacerbated long-standing fragilities.
It is late, exclusionary, insufficient and incomplete.
Government dithered
We knew a third wave was coming, and yet it took until its peak for the president to even announce a relief package. This, unfortunately, follows a trend of delays, starting with the original “R500bn” announced a month into the hard lockdown. The reactionary handling of the situation reflects a policy of appeasement rather than one which centres on human life and wellbeing.
This is in a context where most businesses have lost income, the rate of unemployment has increased and hunger doubled, especially among children. The recent social unrest has compounded this, with an estimated R50bn loss to the economy. Of the initial “R500bn” relief package, a mere 41%, or R207bn, has been used.
Measures excluded
The criteria for the SRD grant cut out about half of those previously accessing the “caregivers allowance” — an amount allocated to caregivers who receive the child support grant on behalf of their dependants. This is because they must be able to show they are currently unemployed.
Similarly, the grant has been “reintroduced” rather than “reinstated”, meaning all previous recipients must reapply. In an attempt to limit a small pool of those who may have gained extremely low-wage and temporary employment, the government has put in place huge administrative hurdles to getting the money into the hands of those most in need.
At the same time, Ters excludes non-UIFregistered workers from its extension. Between the start of 2020 and 2021, workers who are not registered with UIF have lost jobs at over twice the rate of those who are registered. This contributes to the dwindling uptake of Ters.
Similarly, the emphasis on tax registration and compliance will ensure that the most vulnerable businesses are excluded. All of this serves to reduce the income available to poor households.
Funding inadequate
The inadequacy of funding for the tabled relief measures is notable. The R350 SRD grant remains below the national food poverty line of R585 a month, making it insufficient to meet an individual’s most basic food needs. Currently, 13.8-million people live below this level. At an additional cost of R18bn over the next eight months, an SRD grant at the food poverty line could bring millions of people out of extreme poverty.
For SMMEs, the allocated funds are too little to make a substantive impact. There are about 50,000 SMMEs in just the tourism sector. If R50,000 in working capital is offered to these businesses, that would amount to R2.5bn for this sector alone.
No funding has been allocated to support informal sector businesses.
Package incomplete
Several critical vulnerabilities have not received any attention. Despite Mboweni, in an attack on social grants, waxing lyrical about job creation, he continues to hinder this by not releasing the R11bn allocated to the second phase of the Presidential Employment Fund (PES). This, with a further R4bn, should be immediately released to create jobs in vulnerable sectors, and the PES inserted in the medium-term expenditure framework.
Carework and carers continue to be marginalised in the economic relief measures. The early childhood development sector has had challenges accessing relief funds and more than 80,000 workers have not been paid. There is no provision for extending this scheme in the relief package.
In addition, the only tax measures introduced are deferrals and not tax holidays, as in the first package, that could provide real relief to businesses.
Universal basic income guarantee
The social fragilities revealed cannot be left unattended until the next crisis. One critical measure on the table is the institution of a permanent universal basic income guarantee
This recognises that the labour market alone will not solve poverty and inequality and that a universal basic income guarantee can close the gap in the social security system, lifting millions of people out of extreme hunger and poverty.
The cost of this ranges, but an amount of at least R239bn will be needed annually. Towards funding this, the IEJ, with supporting research from DNA Economics, has put forward 19 financing options, amounting to R260bn.
The proposals include adjustments to income taxes, consumption taxes, and wealth and property taxes; removal of corporate tax breaks; the reduction of wasteful and irregular expenditure; and the recoupment of expenditure on a universal basic income guarantee through existing VAT.
The universality ensures that low-income taxpayers receive more from the universal basic income guarantee than they contribute in additional taxes. For example, with R585 per month, 84% of taxpayers will be net beneficiaries.
The universal basic income guarantee can also aid labour market recovery, through decreasing jobsearch costs, improving economic growth and boosting demand for goods.
The inadequacy of the government’s response to Covid reveals that it is time for proactive policy to ensure economic and social recovery. A comprehensive framework that marries short-term rescue with long-term recovery is needed.