Corporate South Africa’s taxes will fund the latest economic recovery package

Treasury director-general says country will not be borrowing to fund R36bn relief package

TAXES from corporate South Africa have come to the aid of the government and prevented the country from approaching international lenders for borrowings to finance its large economic recovery package.

The National Treasury yesterday presented a R36.2 billion socio-economic relief package to boost activity after civil unrest earlier this month left destruction costing the economy nearly R50bn.

Treasury director-general Dondo Mogajane said that there would be no additional borrowing to fund this fiscal package, allaying any possible credit ratings concerns over widening debt.

Mogajane said the package will be funded by reprioritising the funding of existing budgets of the departments of trade and industry and small business development, as well as revenue overrun.

“We are not going to be borrowing at all. This is not in any way going to include or increase our borrowing requirements,” Mogajane said.

The reintroduction of the R350 monthly temporary grant until the end of March 2022 for unemployed people will cost the fiscus R27bn.

The Treasury will provide R3.9bn to the SA Special Risk Insurance Association (Sasria), and a further R5bn tax incentive will be raised to support job creation.

At least R5.3bn will come from the Unemployment Insurance Fund to fund the temporary employment relief scheme and R2.3bn to support small businesses.

The SA Police Service will be allocated an additional R250 million while the SA National Defence Force will receive R750m.

Old Mutual Wealth Investment strategist Izak Odendaal said the relief package was a positive for South Africa’s ratings status as it was funded from the tax overrun, and not borrowings.

“The government has got a tax windfall and it has decided to spend it on social security,” he said.

“The commodity boon was a lifeline, but we must not assume that it is permanent. Any additional spending you want to undertake you must be able to fund it through the budget.”

SA Revenue Service (Sars) Commissioner Edward Kieswetter said there had been an increase in compliance with corporate income tax and value-added tax (VAT) by major companies, especially in the mining sector.

Commodity prices recorded an overall 14.8 percent lift and metal prices jumped 19.2 percent in the second quarter of 2021 compared to the previous quarter, exceeding expectations.

Just this week, Kumba Iron Ore reported a contribution of nearly R10bn to the fiscus during the halfyear to the end of June after delivering record financial returns.

“We have had the best first quarter revenue collection over the three years, which augurs very well for us in terms of beginning to gain the momentum of revenue collection,” he said.

“We are very fortunate that in certain sectors of the economy, specifically the financial sector and mining, we have seen a better-than-expected performance in corporate income taxes

and domestic VAT.”

Kieswetter said Sars will only be able to make a revenue projection in October.

Investec chief economist Annabel Bishop said the revenue collection overrun was now likely to be closer to R50bn after it was forecast to improve by R50bn to R100bn on the strong taxes.

Bishop, however, said the government had learnt a lesson on the need for a quick future response and much better surveillance.

“The fiscal support measures which are to be debt neutral will aid the recovery in business and investor sentiment, and strengthen the outlook for the country as a whole, given the socio-economic focus,” Bishop said.