Kickstarting SA’s economy
A major fiscal and monetary policy response is being implemented to preserve the economy and get it moving again
In May, the state will shift its response to the coronavirus (COVID-19) pandemic by preserving the economy, developing immediate recovery plans and pivoting the economy to a position of growth.
This was revealed by Finance Minister Tito Mboweni during a press briefing in which he outlined details of government's R500 billion economic support package.
The package was announced by President Cyril Ramaphosa during an earlier address to the nation.
In May, government will focus on three phases.
The first phase, which the state is currently in, aims to preserve the country's economy.
“It is designed to be a set of immediate, targeted and temporary responses,” explained the Minister.
The second phase involves a plan, which will be outlined in due course, for the recovery from the immediate effects of the crisis.
“Phase three 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.”
Concerns about the sustainability of South Africa's fiscal choices has seen the cost of South Africa's borrowing increasing faster than other emerging economies.
“The fiscal weakness was present going into the crisis – in particular rising debt to gross domestic product levels, and the rapid growth in interest costs as a share of total spending, squeezing out spending on other priorities,” said Minister Mboweni.
Focusing on the short- and long-term
While government is aware of the need for a short-term enormous intervention, it also has its eye on the future.
“We must ensure that our choices do not mortgage our future. 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.”
The Minister reiterated that the country's macro-economic response must not only be about high-level fiscal and monetary variables but must also be people centred.
“It 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.”
National Treasury has proposed a coordinated fiscal and monetary policy in response to the pandemic.
The state's response will see National Treasury use fiscal and monetary policies in a way that delivers an immediate, targeted and clear response.
“Wisely used together, these key levers can deliver a counter-cyclical boost directly into the heart of the economy. But, if these two levers work against each other, or if the levers are used incorrectly, then we can be left substantially worse off. We must be careful not to choose a path that seems easy, or too good to be true,” he said.
Coordinated response
Teams from National Treasury and the South African Reserve Bank (SARB) have worked together on a set of macro-economic responses to the crisis.
Recent discussions, the minister said, pointed to a need to appropriately calibrate fiscal and monetary policy interventions, and provide appropriate advice.
“We must always balance short-term fiscal and monetary policy interventions with long-run sustainability. Working under the leadership of our President, we calibrated a fiscal package of approximately R500 billion. 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.”
This takes the total economywide measures to over R800 billion. “This is a major fiscal and monetary policy response.”
The five components of the fiscal response are:
A 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.
Supportive monetary and financial market measures.
Three packages
“Under the first part of the package, we are setting aside an amount of R20 billion to be directed to addressing our efforts in dealing with the pandemic. Under the second part of the package, the government will substantially increase our social security net. To this end, government has set aside R50 billion towards child support grants.”
In May, child support grant beneficiaries will receive an extra R300. In the following five months, caregivers will get an additional R500 each month.
All other grants will be topped by R250 per month for the next six months. During the next six months, the unemployed will receive a COVID-19 Social Relief of Distress Grant of R350.
The third part of the package will see an extensive set of tax relief and support for workers.
These range from:
An increase in the expanded employment tax incentive amount from R500 to R750 per employee.
A skills development levy holiday of four 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.
An increase in the turnover threshold for automatic deferrals.
National Treasury has also expanded access to living annuity funds by allowing individuals to adjust the proportion they receive as annuity income, instead of waiting up to one year until their next contract anniversary date.