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Breaking down government’s COVID-19 R500 billion economic support package

Last night President Cyril Ramaphosa addressed the nation in order to outline the relief measures that the government would be putting in place as a result of the impact of COVID-19 and the extended national lockdown.

In his address, the President confirmed that all relief funds and grants totalled an estimated R500 billion, with a significant portion going to businesses and enterprises struggling to pay employees at this time.

“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,” explained Ramaphosa.

Here, we’re going to break down the R500 billion and detail what portions of the total have been assigned to specific initiatives and purposes.

The loan guarantee scheme

The largest portion of the R500 billion is being set aside for government’s new loan guarantee scheme, with it receiving an estimated R200 billion. The scheme is being put together through a partnership between the National Treasury, South African Reserve Bank and major banks in the country.

At this stage it remains to be seen which banks are involved in the scheme, but for now, this initiative is aimed at assisting enterprises to handle operational costs, such as salaries, rent and the payment of suppliers.

During the first phase of this fund, government says only enterprises with an annual turnover of less than R300 million will be eligible.

The scheme is touted to support over 700 000 firms and more than 3 million employees, according to the President, so if successful, it would indeed prove a much-needed initiative. The Presidency adds that a number of banks are ready to roll out the product before the end of the month, but we await to hear from financial institutions on that front.

COVID-19 efforts and funds

Looking at the next largest portion, Ramaphosa has noted that R100 billion will be put aside for the protection of jobs during the COVID-19 pandemic and to create jobs as well post-lockdown. Unlike the measures in place in the corporate sector explained above, it still remains to be seen how this additional funding will be handled and disbursed.

On top of the R100 billion, another R2 billion will be allocated for SMMEs, small businesses and spaza shop owners in particular. Again, the disbursement of this finding is unclear for now.

Moving to municipalities, R20 billion will be directed their way, with it specifically going towards the provision of emergency water supplies, increased sanitisation of public transport and facilities, and providing food and shelter for the homeless.

Here, it will be vital that all monies are accounted for, and go to the causes that need it most, along with ensuring no palms are greased or anything goes “missing” during this time.

For now, there is no indication of how much each municipality will get.

Also receiving R20 billion will be the country’s efforts related to fighting the spread of COVID-19, and treating those who have tested positive.

“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,” government officials add.

Tax relief measures

In addition to current tax relief measures, government says it 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 taxes.

“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,” says government.

Furthermore, 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,” the President explained.

Ramaphosa also noted that 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. He also notes that these tax measures should provide an estimated R70 billion in cash flow relief or direct payments to businesses and individuals in total.

Re-opening the economy

Lastly, the President confirmed that South Africa will adopt a phased approach to the re-opening of the economy. The details for this plan will be unpacked later this week, with another national address set to happen on Thursday (23rd April) at the time of writing.

We will share information on how to watch the live address on the day.

If you did not watch last night’s address, you can see the SABC’s coverage of it in the video below.

[Image – SANews]

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