CEO Piet Mouton: We are not arguing economy over lives, but that lives are linked to the economy.
On 23 April, PSG Group CEO Piet Mouton released a letter on behalf of the company’s board stating that the lockdown is causing severe damage to what is left of the fragile economy.
“The longer it takes to come out of the lockdown, the worse it will be going forward for every citizen of South Africa,” Piet said. However, he believes that a system in which the country moves in and out of lockdown depending on the number of infections, will have a similarly disastrous effect. “The only option is a continued lockdown of the elderly and frail until the virus is contained or a vaccine becomes available, while the economy operates as close to normal as possible.”
He said that the PSG board lies awake at night as they have a major responsibility to all their employees and their families, clients, suppliers, bankers, the government and ultimately the people of the country. “To remain quiet during this crisis is unfortunately no longer an option for us and silence will certainly not be a benefit to anyone.”
Pieter explained that the group is not arguing “economy over lives”, but that lives are “inextricably” linked to the economy. “Our survival and wellbeing depend on whether and how quickly our economy recovers.”
He said that the economy is struggling and the country is running at a significant budget deficit with already worrying levels of debt, high unemployment and struggling parastatals. “We do not have the means to provide meaningful relief packages on a sustainable basis without further loading the debt burden to such an extent that we may never be able to repay it, or struggle to do so.”
The government’s primary source of income to address the pandemic is tax collection. More than 80 percent of tax revenue is derived from personal tax, corporate tax and VAT. However, many businesses earn no revenue at the moment, while others do very little.
According to Piet’s letter, this will further impact the economy:
- Significantly less VAT and corporate tax will be collected, and businesses have stopped paying their rent and other suppliers as they simply cannot afford to, which has resulted in a very negative economic spiral and ever-decreasing VAT and income tax revenue.
- Individuals have also stopped paying rent, servicing debt and consumer spending is down significantly as a result of lockdown, resulting in less VAT.
- Most companies that survive the lockdown will make significantly lower profits, if any, for the year, so very little corporate tax will be collected. Tax losses will also have a negative impact on future year tax revenue for the government.
- There will be significant job losses, which translates to the loss of personal tax revenue, loss of spending power for the individual and an increase in government grants to be paid.
- Many SMEs will close forever because they don’t have surplus reserves, which will result in a loss of jobs and tax.
“It is therefore clear to us that the government will experience a significant decline in tax revenue resulting in the already noteworthy budget deficit widening even further,” Piet said. “Where is the money going to come from to reinvigorate the economy and pay for an ever-increasing social bill? Less people will be able to contribute to the South African treasury and far more will become utterly dependent on it.”
He believes that the Solidarity Fund won’t be enough. According to a recent study, the economy is losing R13 billion per day during the lockdown. “We will still lose billions even if we partially open or totally open up the economy.”
In the letter, Piet requests that the government carefully consider the extent of further restrictions and the urgency to return to economic activity. “We believe South Africa should act much faster in lifting restrictions to rejuvenate the economy.”