Government relief fund fails to make the grade

Only a third of the government’s R500-billion rescue package for the Covid-19 pandemic has been used, and evidence shows it has not reached small businesses that need it the most.
According to the Institute for Economic Justice (IEJ), although there was little reporting and data on the efficacy and uptake of tax relief measures, it appeared that most businesses, particularly SMMEs, did not access the programmes.
“Many of the promises within the rescue package were not kept and millions are suffering as a result. Unfortunately, a number of important relief measures have expired while South Africans struggled through the second wave of the Covid-19 pandemic with less support,” the IEJ said in its latest scorecard on the package.
“If the government does not urgently step up and provide the rescue and relief required by households, small businesses and other vulnerable groups, there is no chance of economic recovery.”
The scorecard gives the state and banks an F for supporting businesses through tax deferments, which have now ended, and loans.
The IEJ said there was little reporting and data on the efficacy and uptake of the tax relief measures. However, it appeared that most businesses, particularly SMMEs, did not make use of them.
“In some cases, conditions, such as not having any tax debt, would exclude many of the most vulnerable small businesses. For the programmes that required an application, it is likely that businesses with inhouse finance teams were able to benefit, while smaller businesses would be left behind.”
A main concern from the small business sector has been the state placing high qualification criteria to access its relief programmes, such as the tax debt condition. This differs to other countries where help could be accessed by companies that had historical debt.
The institute agreed that certain forms of relief should be automatic for small businesses.
Of the R70-billion set aside for tax deferments, only R15.3-billion had been spent, the IEJ said.
Only 434 SMME vendors made use of filing VAT returns on a more frequent basis to access VAT refunds sooner.
A total of R1 billion was also paid out for relief on a “case-by-case” basis for 167 applications.
The IEJ has called on the government to extend tax relief measures for small businesses and employees.
“These businesses are trying to re-open and cash flow remains a serious constraint,” it said.
The institute said the state also needed to develop tax relief measures for households, and additional tax revenue must be raised by increasing taxes on the wealthy and high-income earners.
On the credit guarantee scheme of R200-billion, the IEJ said that by mid-January, only R18-billion in loans had been given. Of the 48,366 applications, only 27% were approved and paid out by lending institutions.
“This scheme has largely failed… Heavily indebted firms have been reluctant to accumulate more debt, but early in the programme banks also used traditional credit-worthiness checks,” it said.
“These checks should not apply to applicants as a requirement for the loan is that the business should be in financial distress. While some changes to the requirements were made in July 2020, the scheme remains inaccessible and the support it can be provide is limited.”
It said administrative issues had also led to delays and made it very difficult for small businesses to access these funds.
The IEJ gave other schemes and support systems these scores:
– C for providing funds to pay wages
– D for job creation and protection
– D for supporting households and communities
– F for providing additional health and municipal funding