Ramaphosa's R500bn relief plan welcomed - but where will the money come from?
The UIF's Covid-19 temporary employer/employee relief scheme has paid out R1.6bn
Economists have welcomed the socio-economic relief measures worth R500bn announced by President Cyril Ramaphosa to address the Covid-19 crisis.
Economist Xhanti Payi said the government had done well to offer relief to the most vulnerable in terms of cash and vouchers so as to stave off hunger.
“Had the government not moved in a significant way, it may have led to unrest and the violation of the lockdown,” Payi said in a note on the stimulus package.
President Cyril Ramaphosa announced on April 21 2020 that the South African government will make an additional R500bn available to assist in the fight against Covid-19. The money will come from reprioritising the country’s current budget and from international institutions such as the International Monetary Fund (IMF) and the New Development Bank (NDB). Here’s where the government will spend the money.
However, another economist, Mike Schussler, said though the R500bn injection was welcome, the challenge was how the country would pay for the extra billions.
Schussler said though some of the R500bn was reprioritised from existing departments and from the Unemployment Insurance Fund (UIF), the government still needed to raise close to R200bn from other sources. He said this was a lot of money and plans had to be tabled on how it would be raised and under what terms.
“We need to wait until the finance minister (Tito Mboweni) presents an emergency budget on how we will pay for all this. The questions to be answered are, where are we borrowing it from, and how are we going to pay it back,” Schussler said.
He said the budget from Mboweni would give an indication of whether a wealth tax would be raised or whether there would be a raid on pension funds.
Schussler said that while the injection was needed, the country must find ways, within reason, to open up the economy so that some people could get back to work.
In his note, Payi said not all of the R500bn was new money as R130bn would come from other budget items, R40bn from the UIF, R70bn from tax breaks and R200bn from a loan guarantee scheme.
“The balance is what may come from loans, including what SA is eligible for from the IMF (International Monetary Fund)," Payi said.
He said the reprioritisation of the budget needed to be done with dexterity.
“One supposes that the risk-adjusted gradual opening of the economy will drive this to a large extent,” Payi said.
Meanwhile, the department of employment and labour said that by the end of business on Tuesday, the UIF's Covid-19 temporary employer/employee relief scheme (Ters) had paid out R1.6bn, helping more than 37,000 companies and 600,000 workers.
The department said R40bn had been set aside for income support payments for workers whose employers are not able to pay their wages during the lockdown.