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Three-phased economic response to COVID-19 pandemic

22 April 2020

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.

Photo: President Cyril Ramaphosa addressing the nation (Kopano Tlape, GCIS​)

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 for 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 finance institutions.

To date, 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. 

R50 billion to relieve plight of the vulnerable

Government will direct R50 billion towards relieving the plight of South Africans who are most affected by the Coronavirus (COVID-19) by temporarily increasing the child support grant for six months.

“This means that child support grant beneficiaries will receive an extra R300 in May and from June to October they will receive an additional R500 each month,” President Cyril Ramaphosa said.

Addressing the nation on Tuesday evening on additional economic and social relief measures that form part of the national response to the COVID-19 pandemic, the President said all other grant beneficiaries will receive an extra R250 per month for the next six months.

"Poverty and food insecurity have in recent weeks deepened dramatically as the country deals with the pandemic. To reach the most vulnerable families in the country, we have decided on a temporary six-month Coronavirus grant,” the President said.

In addition, a special Covid-19 Social Relief of Distress grant of R350 a month for the next 6 months will be paid to individuals who are currently unemployed and do not receive any other form of social grant or Unemployment Insurance Fund (UIF) payment.

The Department of Social Development will issue the requirements needed to access and apply for this funding.

Increased efforts for food assistance

“We have recognised that the food distribution capacity of government is not adequate to meet the huge need that has arisen since the start of the epidemic.

“The South African Social Security Agency – SASSA – will within days implement a technology-based solution to roll out food assistance at scale through vouchers and cash transfers to ensure that help reaches those who need it faster and more efficiently,” the President said.

Moreover, the Department of Social Development has partnered with the Solidarity Fund, non-governmental organisations (NGOs) and community-based organisations to distribute 250 000 food parcels across the country over the next two weeks.

The President said government was deeply disturbed by reports of unscrupulous people abusing the distribution of food and other assistance for corrupt ends.

“We will not hesitate to ensure that those involved in such activities face the full might of the law,” President Ramaphosa said.

An 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.

The President said the nation-wide lockdown has had a negative impact on the revenue of municipalities at a time when the demands on them are increasing.

Protection of jobs

Government will set aside an additional R100 billion for protection of jobs and to create jobs.

“While there are several interventions that already exist within government to deal with the extremely high unemployment such as the Expanded Public Works Programme and the community works programme, these are not enough. The Coronavirus crisis will lead to many people losing their jobs,” the President said.

Since the declaration of a state of national disaster over a month ago, government has put in place a range of measures to support workers’ wages and assist companies in distress.

“By the end of Tuesday, the UIF’s special COVID-19 benefit has paid out R1.6-billion, assisting over 37 000 companies and 600 000 workers. Forty-billion rand has been set aside for income support payments for workers whose employers are not able to pay their wages,” the President said.

Government continues to provide assistance – in the form of loans, grants and debt restructuring – to Small, Medium and Micro-sized Enterprises (SMMEs), spaza shop owners and other informal businesses.

The value of this assistance to date is over R100 million.

An additional amount of R2 billion will be made available to assist Small and medium-sized enterprises (SMEs) and spaza shop owners and other small businesses.

Government to ease lockdown regulations

Meanwhile, Cabinet has resolved to gradually lift the restrictions on economic activity, guided by the best available scientific evidence.

“We will follow a risk-adjusted approach to the return of economic activity, 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,” President Ramaphosa said.

The President will on Thursday address the nation on the measures that will be taken beyond the nationwide lockdown to re-open the economy.

“We will therefore need to act with agility and flexibility in the weeks and months ahead, and respond to the situation as it develops. This crisis will not last forever, and the day will come when these measures are no longer needed. Until then, however, we must ensure that all of our people receive adequate support,” he said.

The President said 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. The rest of the funds will be raised from both local sources, such as the Unemployment Insurance Fund, and from global partners and international finance institutions. The scale of this emergency relief programme is historic.

"It demonstrates that we will not spare any effort, or any expense, in our determination to support our people and protect them from harm," he said. – SAnews.gov.za

 

 


 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
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February/March 2020

 
 
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