Three-phased economic response to COVID-19 pandemic

President Cyril Ramaphosa Image GCIS.

The gov­ern­ment has announced a mas­sive social relief and eco­nom­ic sup­port pack­age of R500 bil­lion which amounts to around 10% of Gross Domes­tic Prod­uct (GDP) to mit­i­gate against the blow of COVID-19 in the coun­try.

Pres­i­dent Cyril Ramaphosa announced the inter­ven­tion as the coun­try saw a rise of COVID-19 cas­es to 3465 with 58 deaths record­ed as of Tues­day.

The new­ly announced sup­port pack­age forms part of the sec­ond tier of the country’s three-phase eco­nom­ic response to sta­bilise the econ­o­my, address the extreme decline in sup­ply and demand and pro­tect jobs.

The social relief and eco­nom­ic sup­port pack­age that stands at the cen­tre of the sec­ond phase will cater to an extra­or­di­nary health bud­get to respond to Coro­n­avirus, the relief of hunger and social dis­tress, sup­port for com­pa­nies and work­ers and the phased re-open­ing of the econ­o­my.

“The impact of the Coro­n­avirus requires an extra­or­di­nary coro­n­avirus bud­get – of around R500 bil­lion – to direct resources towards fight­ing the pan­dem­ic. This will include the repri­ori­ti­sa­tion of around R130 bil­lion with­in the cur­rent bud­get,” said the Pres­i­dent.

The third phase is the eco­nom­ic strat­e­gy imple­ment­ed to jump­start the recov­ery of the econ­o­my as the coun­try emerges from the pan­dem­ic.

The announce­ment of the repri­ori­ti­sa­tion of the state’s cof­fers to fight the pan­dem­ic fol­lows recent delib­er­a­tions at Cab­i­net, the Nation­al Coro­n­avirus Com­mand Coun­cil, the President’s Coor­di­nat­ing Coun­cil, and the Nation­al Eco­nom­ic Devel­op­ment and Labour Coun­cil, among oth­ers.

IMF, World Bank approached for COVID-19 funds

The Pres­i­dent announced that the rest of the funds to fight COVID-19 will be raised from both local sources, such as the Unem­ploy­ment Insur­ance Fund, and from glob­al part­ners and inter­na­tion­al finan­cial insti­tu­tions.

To date, the gov­ern­ment has approached the World Bank, Inter­na­tion­al Mon­e­tary Fund, BRICS New Devel­op­ment Bank and the African Devel­op­ment Bank. Work is under­way between the Nation­al Trea­sury and these insti­tu­tions on the var­i­ous fund­ing trans­ac­tions.

This fund­ing will be used in the first instance, to fund the health response to Coro­n­avirus through the pro­vi­sion of treat­ment, addi­tion­al expen­di­ture on per­son­al pro­tec­tive equip­ment for health work­ers, com­mu­ni­ty screen­ing, an increase in test­ing capac­i­ty, addi­tion­al beds in field hos­pi­tals, ven­ti­la­tors, med­i­cine and staffing.

“An amount of R20 bil­lion will be direct­ed to address­ing our efforts to address the pan­dem­ic,” said the Pres­i­dent.

Munic­i­pal­i­ties receive R20 bil­lion

As the coal­face of ser­vice deliv­ery, munic­i­pal­i­ties are among the hard­est hit at a time when the demands on them are increas­ing.

In this regard, addi­tion­al fund­ing of R20 bil­lion will be made avail­able to munic­i­pal­i­ties for the pro­vi­sion of emer­gency water sup­ply, increased sani­ti­sa­tion of pub­lic trans­port and facil­i­ties, and pro­vid­ing food and shel­ter for the home­less.

With the Coro­n­avirus cri­sis set to add to job loss­es, the Pres­i­dent announced that an addi­tion­al R100 bil­lion will be set aside for the pro­tec­tion of jobs and to cre­ate jobs.

An addi­tion­al amount of R2 bil­lion will be made avail­able to assist SMMEs and spaza shop own­ers and oth­er small busi­ness­es.

Loan guar­an­tee scheme

In part­ner­ship with the major banks, the Nation­al Trea­sury and the South African Reserve Bank, gov­ern­ment will intro­duce a R200 bil­lion loan guar­an­tee scheme. This will assist enter­pris­es with oper­a­tional costs, such as salaries, rent and the pay­ment of sup­pli­ers.

In the ini­tial phase, com­pa­nies with a turnover of less than R300 mil­lion a year will be eli­gi­ble.

The scheme is tipped to sup­port over 700 000 firms and more than 3 mil­lion employ­ees dur­ing this peri­od. A num­ber of banks are ready to roll out the prod­uct before the end of the month.

Tax relief mea­sures

In addi­tion to exist­ing tax relief mea­sures, gov­ern­ment will also intro­duce a four-month hol­i­day for com­pa­nies’ skills devel­op­ment levy con­tri­bu­tions, fast-track­ing VAT refunds and a three-month delay for fil­ing and first pay­ment of car­bon tax.

To assist more busi­ness­es, the pre­vi­ous turnover thresh­old for tax defer­rals is being increased to R100 mil­lion a year, and the pro­por­tion of PAYE pay­ment that can be deferred will be increased to 35 per­cent.

Busi­ness­es with a turnover of more than R100 mil­lion a year can apply direct­ly to SARS for defer­rals of their tax pay­ments.

“No penal­ties for late pay­ments will be applic­a­ble if they can show they have been mate­ri­al­ly neg­a­tive­ly impact­ed in this peri­od,” said the Pres­i­dent.

Addi­tion­al­ly, tax­pay­ers who donate to the Sol­i­dar­i­ty Fund will be able to claim up to an addi­tion­al 10 per­cent as a deduc­tion from their tax­able income.

In total these tax mea­sures should pro­vide at least R70 bil­lion in cash flow relief or direct pay­ments to busi­ness­es and indi­vid­u­als.

The Finance Min­is­ter is expect­ed to flesh out fur­ther details on the tax-relat­ed announce­ments when he tables the adjust­ed bud­get.

Re-open­ing of the econ­o­my

The fourth area Cab­i­net delib­er­at­ed on was the phased re-open­ing of the econ­o­my.

The Pres­i­dent said the reopen­ing of the econ­o­my will fol­low a risk-adjust­ed approach, bal­anc­ing the con­tin­ued need to lim­it the spread of the coro­n­avirus with the need to get peo­ple back to work.

“As we do so, we remain firm in our resolve to con­tain the trans­mis­sion of the virus. We will, there­fore, need to act with agili­ty and flex­i­bil­i­ty in the weeks and months ahead, and respond to the sit­u­a­tion as it devel­ops,” he said. –

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President Cyril Ramaphosa GCIS.

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