COVID-19 Emergency Supplementary Budget – A Synopsis

Dynamix HR Solutions
Mar 8, 2021
3 min read

Updated: Mar 29, 2021

Minister of Finance, Tito Mboweni, presented his supplementary budget speech last week against the backdrop of his COVID-19 emergency budget. This came about as a result of extremely slow economic growth, a decline in investor confidence, and the negative effects the COVID-19 pandemic has had on the South African economy.

What follows are some of the key points that came out of the speech. I thought I’d share these with you.

Economic outlook

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% during 2020.
A global contraction of 5.2% is now expected.
It is expected that the South African 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.

Taxes

Only a couple of months after the 2020/2021 budget speech, South Africa is already R35.3 billion behind on its 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.

Unemployment insurance

Up to mid-June, the Unemployment Insurance Fund (UIF) had 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.