Options in the aftermath of the COVID crisis

Posted by Bennie Groenewald on 25 June 2020.

Bennie Groenewald

LLM Tax Law, B.Proc, HDip Tax

The Tax Shop Head Office

More about Bennie Groenewald

After having qualified and practiced as a Commercial lawyer Bennie worked in the Banking and Financial services industry for 25 years across multiple market segments in South Africa, Sub-Saharan Africa and the UK, the last 14 years of which in senior and executive leadership positions. During this time, he dealt extensively with cross-border banking and finance including project finance, asset finance, debt capital markets and derivatives, including the legal aspects thereof. In recent years, Bennie has played an active leading role in investment, credit and risk management as well as sound corporate governance.

The shutdown of Planet Earth has caused not only a health crisis but also an unprecedented drop in economic activity, the extent of which we haven’t seen in recent history.

Many governments worldwide have taken extraordinary action to respond to the coronavirus pandemic, adopting fiscal measures to safeguard the wellbeing of their citizens and support households and businesses.

Here at home the fiscal packages so far, have been aimed at cushioning the immediate impact of the sudden decrease in economic activity on firms and households. However, the relief programmes are adding hefty amounts to already high government debt – the result thereof is that our economy will be faced with painful adjustments because of government indebtedness.

Impact on healthcare professionals

In the health profession, it is estimated that certain medical specialties experienced as much as a 70% decline in visits and procedures – a direct and severe impact on cash flow. In the meantime, the need to purchase personal protective equipment (PPE) and other supplies has increased cash outflow. This combination threatens the financial viability of many private practices.

Hospitals face similar financial challenges and it is understood that elective operations, cancer-related treatment, ER visits, and other profitable services have been cancelled or deferred. Meanwhile, purchasing ventilators, deployment of costly germ-eradicating robots, retrofitting facilities, and other COVID-19 response measures cost money. To curb spending, many hospitals have to consider layoffs, placing staff on leave, and pay cuts, affecting the financial interest of their employed physicians and other workers.

Where to from here with SA’s evolving health and economic challenges?

It is expected that the tax collection shortfall in 2020 will be R285-billion, while demands for social spending ranging from jobs and infrastructure to National Health Insurance (NHI) and grants continue – what remains missing is the revenue.

Over the weekend, we learned from National Treasury that the New Development Bank (established by the BRICS states) had approved a $1 billion loan for South Africa, with the proceeds to be used for healthcare and to boost the social safety net. We heard that a loan of more than $4 billion from the International Monetary Fund (IMF) may be in the pipeline.

The problem is an emerging market economy like ours will struggle to fund the increased borrowing needs.

Tomorrow (Wednesday) the Finance Minister will be looking at creative ways to cope with South Africa’s planned R500 billion fiscal package as the International Monetary Fund (IMF) funding is not a guarantee. One of the options could be the introduction of zero-based budgeting.

Right planning offers hope

Despite these challenges, there are opportunities and reasons for hope with the right planning. Doctors who choose to innovate in healthcare delivery and payment arrangements may be able to transform the financial risks imposed by the pandemic into opportunities that benefit patients, themselves, and the country’s healthcare.

As an economic crisis generally impacts negatively on consumer purchasing power resulting also in reduced healthcare expenditure, it wouldn’t come as a surprise if Covid-19 and the efforts to revive the anaemic economy, speed up health reform by establishing some form of health insurance, effectively pooling public and private resources to purchase health care for the entire population.

Bennie Groenewald is the Executive Director at the Tax Shop