Minister of finance, Tito Mboweni, on Friday (24 April), moved to elaborate on the government’s stimulus package to deal with the impact from the Covid-19 pandemic.
It follows the R500 billion Covid-19 economic relief packages announced by president Cyril Ramaphosa earlier this week.
“At this time of great need, our macroeconomic response must not only be about the high-level fiscal and monetary variables,” Mboweni said.
“Those are very important. Our intervention must also be about our people, particularly the poor, the infirm and the vulnerable. It must also be about the businesses – large and small – that drive our economy, and create work for our people. It must be about our banking and financial system, to make sure money continues to flow through the veins of the economy.”
A co-ordinated fiscal and monetary policy response
The minister said that working under the leadership of the president, a fiscal package of approximately R500 billion was calibrated, adding that governor, Lesetja Kganyago, has already unveiled a monetary and policy package.
“This will bring additional life into the whole financial system, and will utilise the combined balance sheet of the country in a careful but appropriate way.”
Mboweni said that the combined fiscal and monetary policy package exceeded R800 billion so far.
The main components of the fiscal response can be thought of in five components, the minister said, which are:
- An extraordinary health budget (R20 billion) to respond to coronavirus;
- The relief of hunger and social distress;
- Support for companies and workers;
- The phased re-opening of the economy which the President spoke about last night; and
- The supportive monetary and financial market measures.
Under the first part of the package, R20 billion has been set aside to deal with the pandemic. “Under the second part of the package, the government will substantially increase our social security net,” he said.
“We are directing R50 billion towards relieving the plight of those who are most desperately affected by the coronavirus. Child support grant beneficiaries (children) will receive an extra R300 in May.
“From June we will change the way the system works a little. From June to October caregivers (typically mothers) will get an additional R500 each month. All other grants will be topped by
R250 per month for the next six months. We will use our existing system to disburse these grants.
“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 UIF payment,” Mboweni said.
On the tax side, the government’s proposals include:
- An increase in the expanded employment tax incentive amount from R500 to R750 per employee;
- A skills development levy holiday of 4 months from 1 May 2020;
- Fast-tracking VAT refunds;
- Deferring the payment of excise duty on alcoholic beverages and tobacco products;
- A three-month deferral for filing and first payment of carbon tax liabilities to 31 October 2020;
- A postponement of some of the corporate tax proposals in this year’s Budget on interest expenses and assessed losses;
- An increase in the deferment of employee’s tax; and
- An increase in the turnover threshold for automatic deferrals.
“I will shortly be tabling a revised budget bill to Parliament to deal with all these measures,” the minister said. “We are in this together. South Africa is resilient, and we have the ability to get through tough times together.”
Further support for firms will come from a R200 billion loan guarantee scheme, which the president also announced.
Mboweni said that the longer that growth remains weak, the greater the risk that there will be permanent destruction of economic capacity. This in turn has serious implications for the income streams of households and firms.
Global weakness further compounds these growth effects, alongside the impact of a weaker currency and higher borrowing costs, the minister said.
“Concerns about the sustainability of South Africa’s fiscal choices has seen the cost of borrowing in our country increase faster than other emerging economies.
“The fiscal weakness was present going into the crisis – in particular, rising debt to GDP levels and the rapid growth in interest costs as a share of total spending, squeezing out spending on other priorities.”
Unsustainable state-owned enterprises are putting enormous pressure on the budget, Mboweni said. “The quicker we find solutions to this the better for everyone.”
“We must ensure that our choices do not mortgage our future,” the minister said.
He said that in the month ahead, the government’s response will be in three phases:
- Phase 1 is the phase we are currently in, which aims to preserve our economy. “It is designed to be a set of immediate, targeted and temporary responses,” he said.
- Phase 2 is a plan for recovery from the immediate effects of the crisis. “We will outline this in due course,” he said.
- Phase 3 is a pivot to position the economy for structurally higher growth. “This virus will be beaten. But we must make sure that when we beat it, we do not compromise our long-run sustainability,” the minister said.
“In particular, as we come out of the coronavirus crisis, we must work quickly to implement our structural reforms to get the economy moving. Virus or no virus, the economy has been growing too slowly for too long.”