On Wednesday 24 June 2020, Finance Minister Tito Mboweni addressed the nation in a COVID-19 emergency budget speech. This was brought on by an extremely slow economic growth, a decline in investor confidence and the negative effects of the COVID-19 pandemic. Below are some of the key points that came out of the speech.
- The COVID-19 pandemic has turned the global economy on its head. In February it was expected that the global economy would expand by 3.3% in 2020.
- Now a global contraction of 5.2% is expected.
- In South Africa it is expected that the economy will contract by 7.2 % in 2020.
- This is the largest contraction in nearly 90 years.
- It is projected that the total budget spending, including debt service costs, will exceed R2 trillion for the first time ever.
- This will lead to a consolidated budget deficit of almost R761.7 billion, a sharp increase from what was projected in February.
- Only a couple of months after the 2020/2021 budget speech, South Africa is already R35.3 billion behind on the initial target.
- Due to the gross tax revenue for the 2020/21 fiscal year being revised down from R1.43 trillion to R1.12 trillion, we can expect to miss our target for this year by over R300 billion.
- Tax measures of R40 billion over the next four years will also be required and will be proposed in the 2021 budget.
Protecting the most vulnerable
- In an effort to support the most vulnerable and destitute, an additional R25.5 billion has been allocated to the Social Development Department.
- This will be distributed via the Special Relief of Distress grant, and will bring the total relief package to R41 billion.
COVID-19 and frontline services
- As a response to the COVID-19 pandemic, a further R34.1 billion is proposed to be spent on COVID-19 related healthcare and frontline services.
- The government will also borrow about US$7 billion from international finance institutions to support the pandemic response.
- The Solidarity Fund has supplemented the government’s efforts to procure medical and personal protective equipment.
- R5 billion has been set aside for the education catch-up plan, to assist in making up lost time during the lockdown, social welfare support for communities and for the setting up of quarantine sites by the Public Works department.
- Up to mid-June, the Unemployment Insurance Fund (UIF) has paid out R23 billion in COVID-19 relief to over 4.7 million workers affected by the pandemic.
- This required a huge upgrade and repurpose of the UIF system to deal with online applications and to protect the system against fraud.
Driving job creation
- With unemployment peaking at 31%, it is our single biggest challenge according to Minister Mboweni.
- The Economic Support Package has set aside R100 billion for a comprehensive multi-year plan to create jobs.
- This will include a repurposed public employment programme and a Presidential Youth Employment Intervention.
The way forward
- The government has proposed that they will narrow the deficit and stabilise debt at 87.4 percent of the GDP in 2023/24.
- Cabinet has also adopted a target of a primary surplus by 2023/24.
- Tax measures/proposals of R40 billion over the next 4 years will also be required and will be announced in the 2021 Budget.
- Government will also be allocating R3 billion to recapitalise the Land Bank. This will be done through a long-term restructuring plan.
- Government has also committed to a R100 billion investment into the Infrastructure Fund as a way to increase growth and assist in increasing the GDP in South Africa.