Pretoria|President Cyril Ramaphosa on Tuesday night announced a R500 billion additional economic and social relief strategy in the fight against COVID 19 pandemic.
According to Ramaphosa, the pandemic has resulted in the sudden loss of income for businesses and individuals alike. Deepening poverty and increasing hunger.
“While the nation-wide lockdown is having a devastating effect on our economy, it is nothing compared to the catastrophic human, social and economic cost if the coronavirus could spread among our people unchecked,” said Ramaphosa
He added that the pandemic requires an economic response that is equal to the scale of the disruption it is causing.
The economic response is divided into three phases.
The first phase began in mid-March when the government declared the coronavirus pandemic as a national disaster. This included a broad range of measures to mitigate the worst effects of the pandemic on businesses, on communities and on individuals. The measures included tax relief, the release of disaster relief funds, emergency procurement, wage support through the UIF and funding to small businesses.
On Thursday, Ramaphosa announced that the government was now embarking on the second phase of its economic response to stabilise the economy, address the extreme decline in supply and demand and protect jobs.
“As part of this phase, we are announcing this evening a massive social relief and an economic support package of R500 billion, which amounts to around 10% of GDP,” he said.
The third phase is the economic strategy which will be implemented to drive the recovery of the country’s economy as the Republic emerges from this devastating pandemic.
Central to the economic recovery strategy will be the stimulation of demand and supply through interventions such as a substantial infrastructure build programme and the speedy implementation of economic reforms.
More of these measures are highly likely to be announced on Thursday.
R500 Billion Social Relief and Economic Support Package
Cabinet considered various proposals and finalised the social relief and economic support package that stands at the centre of the second phase of Ramaphosa’s administration’s economic response.
- Firstly, an extraordinary health budget to respond to coronavirus,
- Secondly, the relief of hunger and social distress,
- Thirdly, support for companies and workers,
- Fourthly, 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 Ramaphosa
The rest of the funds will be raised from both local sources, such as the Unemployment Insurance Fund, and from global partners and international financial institutions.
According to Ramaphosa, to date, the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank have been approached and are working with the National Treasury on various funding transactions.
Some of these institutions have created financing packages that are aimed at assisting countries that are having to address the coronavirus crisis like South Africa.
R20 billion to directly fight COVID-19
An amount of R20 billion will be directed to addressing our efforts to address the pandemic.
This money is meant to ensure that the government successfully manages the anticipated surge in cases and ensures that everyone who needs treatment receives it.
The R20 Billion will also aid 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.
R20 Billion dedicated to municipalities
The nation-wide lockdown has had a negative impact on the revenue of municipalities at a time when demands on them are increasing.
As such, additional funding of R20 billion will, therefore, be made available to municipalities for the provision of emergency water supply, increased sanitization of public transport and facilities, and providing food and shelter for the homeless.
Details will be announced in the adjustment budget tabled by the Minister of Finance.
R50 billion coronavirus grant
A significant area that requires massive additional expenditure is the relief of hunger and social distress in communities across the country where those without employment are struggling to survive.
To reach the most vulnerable families in the country, Ramaphosa announced that his administration has decided on a temporary 6-month Coronavirus grant.
R50 billion will be directed towards relieving the plight of those who are most desperately affected by the coronavirus.
Child support grant beneficiaries will receive an extra R300 in May and from June to October they will receive an additional R500 each month.
All other grant beneficiaries will receive an extra R250 per month for the next six months.
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 a social grant or UIF payment.
The Department of Social Development is set to issue the requirements needed to access and apply for this funding.
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.
In addition, to fill the immediate need, the Department of Social Development has partnered with the Solidarity Fund, NGOs and community-based organisations. This partnership will distribute 250,000 food parcels across the country over the next two weeks.
R100 Billion for job protection and creation
It is undeniable that the Coronavirus crisis has led to many people losing their jobs.
As such, an additional R100 billion has been set aside for the protection of jobs and also to create jobs.
This money is expected to go a long way in the complimenting existing government efforts that have been put in place to support worker’s wages and assist companies in distress.
To date, the UIF’s special COVID-19 benefit has paid out R1.6-billion, assisting over 37,000 companies and 600,00 workers.
R40 billion has been set aside for income support payments. Primarily for workers whose employers are not able to pay their wages.
An additional amount of R2 billion will be made available to assist SMEs. These include spaza shop owners and other small businesses.
Other forms of support have been extended to artists, athletes, and technical personnel. As well as to waste pickers and public works participants in the environment sector.
R200 billion loan guarantee scheme
While these measures are providing obvious relief to many companies and workers. It is clear that there is a far greater need across the entire economy.
To ensure holistic support of the entire economic ecosystem, Ramaphosa introduced a R200 billion loan guarantee scheme in partnership with major banks, the National Treasury and the South African Reserve Bank.
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.
It is expected that the scheme will support over 700,000 firms and more than 3 million employees through this difficult period.
The President said a number of banks are ready to roll out the product before the end of the month.
Additional tax relief measures
In addition to existing tax relief measures, the Government is introducing a 4-month holiday for companies’ skills development levy contributions, fast-tracking VAT refunds and a 3-month delay for filing and first payment of carbon tax.
To assist a greater number of 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 on a case-by-case basis 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.
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.