Relief package of over R38bn announced by National Treasury

The National Treasury held a webinar media briefing today – at which it announced that it has provided for a relief package of over R38bn for the country, following the damage caused by the recent unrest in KZN and Gauteng. This is made up of R27bn for the relief of distress grant of R350 per month, R3.9bn support for Sasria, and R5bn for the employment tax incentive. Uninsured businesses will receive R2.3bn. The Treasury confirmed that the package would not lead to further borrowing.

“I think the announcement was basically in line with expectations,” Izak Odendaal, Investment Strategist at Old Mutual Wealth told MoneyMarketing. “It follows on from what President Ramaphosa said on Sunday night when he addressed the nation. I think the important point is that it doesn’t change the overall fiscal framework, so the market impact should be neutral because no additional borrowing is required.”

National Treasury Director-General Dondo Mogajane told the webinar that the package was being funded with resources that were currently available, due to improved revenue from the SARS tax collection and by shifting some spending.

“We were extremely lucky that we had this additional money, and most of it is as a result of global conditions, in other words, the elevated commodity prices,” Odendaal added. “I think the global recovery in manufacturing helped – and the SARS commissioner also noted during the briefing that the manufacturing sector was doing quite well in terms of VAT payments. Tax revenues recovered faster than expected and we were able to apply this windfall tax revenue to this specific problem. However, clearly, as emphasised during today’s briefing, this is a one off – this can’t be spent on an ongoing basis.”

SASRIA, the state-owned insurance company, has been allocated R3.9bn by the Treasury. “I wouldn’t expect that amount to suddenly become R10bn,” Els said. “We heard from SASRIA’s CEO at the briefing that they have R9bn on their balance sheet as well as reinsurance agreements – so they are able to pay out R15bn or even above that. They will know the extent of the policies that they wrote and the extent to which they are liable.”

Els believes that there is now a broad acceptance across the spectrum of society that the country needs to provide additional support for households that are struggling with poverty, hunger and unemployment. “It’s very likely that we will see some measures at some point over the next 12 to 24 months in this respect. The present grant is not going to be extended because it’s a one-off grant being funded by the tax windfall – and I think the point was made today that in order to fund a new grant, Treasury would have to make a permanent change in spending or a permanent change in taxation.”

MoneyMarketing asked Odendaal what would probably have happened to the R36bn tax revenue windfall had the unrest not occurred. “Most of it wouldn’t have been spent and government would just have let the deficit shrink – and then at the time of the Medium-Term Budget Policy Statement, they would say that they’d made great progress, and this would have been a positive.”