With work stopped for millions by the lockdown, the quickest and simplest way to provide wage support to employees in the formal economy would be for the SA Revenue Service (Sars) to use the tax system to pay employers a portion of workers’ wages automatically.
This recommendation comes from the Covid-19 Economists Group, a network of economists who are supporting efforts to deal with the economic effects of the pandemic in SA, in a paper written by group convener Miriam Altman.
Employers, labour and the government have negotiated a special Covid-19 benefit to be paid through the Unemployment Insurance Fund (UIF) to employers to disburse. But there is deep concern over the capacity of the fund to handle the administration of the benefit. In 2019, the UIF processed only 25,000 electronic claims. It will now need to deal with more than 1-million employers in the space of a few weeks when employees who were last paid at the end of March are already in need of cash.
Altman recommends that the scale of the benefit be calculated along the lines of the Covid-19 UIF benefit and that the funds come from the reserves accumulated by the funds. The benefit would be paid out to employers automatically on the assumption that all companies are affected by the lockdown. Where companies are not affected or did not shut entirely, the payments would be clawed back through tax returns.
The importance of acting quickly to keep firms afloat and keep employees tied to their firms cannot be emphasised enough, she says.
“The immediate goal in the Covid-19 lockdown must be to ensure that a temporary problem does not become permanent — through needless permanent alienation from work or business, fiscal and/or financial instability, severe destitution, social instability, destruction of sections of economic activity and similar ... This is particularly so in a context of high unemployment and inequality, and an economy that was already struggling,” says the paper.
While the UIF has given the government and social partners assurances that it will act quickly, both business and labour are concerned that the fund will be unable to do so at the pace required. The scheme has already encountered obstacles with a large number of employers making their applications on the old Temporary Employer/Employee Relief Scheme (Ters) rather than the special Covid-19 Ters, which was only finalised last week. The Covid-19 Ters scheme also requires employees in companies with fewer than 10 to make their own individual applications, raising concerns that they will slip through the cracks.
Altman proposes that the Covid-19 Ters migrate to the Sars payment format.
“It is proposed that a blanket wage support be provided through a lockdown. It can be assumed that every private business, with the exception of essential services, will be affected by this lockdown ... A payment across the board has some advantages. It is rapid and creates certainty for the firm and for employees and gives them faith of returning to some normalcy; and it is stimulatory as workers in lower tier of the labour market will fully spend the amounts, mostly on domestically produced goods,” she argues.
Read papers by the Covid-19 Economists Group here.
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