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Navigating uncertainty: A fiscal incentive lens to economic recovery

The Finance Minister in the Medium-Term Budget Policy Statement announced better than expected economic growth and tax revenue, which was well received given the ongoing impact of the COVID-19 pandemic, the incidence of public violence in July 2021 and the increased cost of public debt.

R3.5 billion of the Economic Relief Package that was announced in August 2021 has been made available to support private enterprises to recover and rebuild from the impact of COVID-19 and the unrest in July.

The Loan Guarantee Scheme that was introduced as a COVID-19 business relief measure in 2020, which was underutilised, has been repurposed to focus on small business support measures. The support will include providing expanded funding options available to small businesses and broadening the types of financial institutions which can provide this funding.

As a result of the significant increase in South Africa’s unemployment, with a greater than anticipated impact among young people; an amount of R11 billion has been prioritised for the presidential employment initiative. This includes the allocation of R9.5 billion for employment programmes across different government departments, including an R800 million Social Employment Fund established by the Department of Trade, Industry and Competition. Further details on the presidential employment initiative and additional funding for social grants beyond the current year will be announced in the 2022 Budget; however, what is clear is that a sustained reduction in unemployment will require partnerships with the private sector through investments that support job creation.

To catalyse long-term economic growth, an amount of R100 billion was allocated for the next 10 years to the Infrastructure Fund to leverage private sector and development finance. R24 billion was allocated over the 2022 Medium Term Expenditure Framework period. In May 2021, National Treasury completed its review of the public-private partnerships framework. Policy changes to facilitate increased infrastructure investment will be announced in the 2022 Budget.

Due to the impact of COVID-19 on some industrial policy investment projects, the Section 12I Investment and Training allowances has been amended. The Minister of Trade, Industry and Competition; with the recommendations of the adjudication committee, can extend the period in which assets must be brought into use and the compliance period to meet the requirements of section 12I, by a further two years. The applicant will have to motivate how the COVID-19 pandemic and other related circumstances negatively impacted on their ability to meet the requirements of section 12I.

The Department of Science and Innovation has announced a 10-year plan which aims to rejuvenate sectors such as mining, agriculture and manufacturing, while improving research and innovation across government. It is hoped that as part of this plan, the Section 11D Research and Development incentive will be extended beyond October 2022.

Climate change remains a growing priority. Carbon tax, which was introduced in 2019, will have its second phase commence in 2023. Announcements regarding this phase will be made in the 2022 Budget. It is anticipated that South Africa’s climate transition will be accelerated by the mobilisation of R131 billion in concessional and grant funding, announced at the COP26 climate talks.

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