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Government Draws Line Before Unions on Youth Subsidy Plan

Thursday, 24 October 2013   (0 Comments)
Posted by: Author: Linda Ensor
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Author: Linda Ensor (Business Day)

In a watershed moment for South African politics, the government has publicly slapped down its trade union allies on a key policy issue, saying on Tuesday it would push ahead with its youth employment incentive scheme despite opposition from the Congress of South African Trade Unions (Cosatu).

At the same time, the government has dealt a stunning blow to the notion of prolonged negotiations at the National Economic Development and Labour Council (Nedlac), insisting in Parliament that it would not submit the Employment Tax Incentive Bill to Nedlac as demanded by Cosatu.

Nedlac negotiations on the first version of an incentive scheme — the youth wage subsidy — lasted three years, thereby delaying the introduction of measures to address the severe crisis of high youth employment.

The bill is due to be introduced into Parliament by Finance Minister Pravin Gordhan on Thursday.

The government’s tough stance is sure to ramp up tensions with Cosatu, which is itself caught up in a divisive row over the future of its general secretary, Zwelinzima Vavi.

This has undermined its ability to put up a united front against what it perceives as an assault on workers’ rights.

Nevertheless, the federation has given notice of its intention to call a general strike to protest against the incentive and e-tolls.

"Parliament is the only supreme body here and it approves or rejects or amends bills," Treasury deputy director-general Ismail Momoniat told members of Parliament’s standing committee on finance on Tuesday.

He was giving the Treasury’s response to submissions on the employment incentive proposals made by Cosatu, the National Union of Metalworkers of South Africa, business and church organisations during recent public hearings.

Treasury director-general Lungisa Fuzile was equally adamant that the government could not be hobbled by an obligation to submit proposals such as the proposed youth employment incentive to Nedlac.

The comments by both officials further marginalise the council, which has been overlooked both by the government and by parliamentary portfolio committees and is increasingly regarded as a lame-duck institution.

Nedlac’s credibility received a blow when Parliament’s labour portfolio committee overlooked agreements made when revising the controversial Labour Relations Amendment Bill.

Mr Fuzile said the government and Parliament could not be hamstrung by an obligation to reach consensus within Nedlac.

The Nedlac Act only required that attempts be made to seek agreement on social and economic policy issues before they were submitted to Parliament.

The council could not "usurp" the powers of the executive and Parliament to introduce laws.

Mr Fuzile emphasised that extensive consultations had taken place with the social partners within Nedlac. In any event, the proposals did not involve any change to labour laws.

Similarly, he said that too much emphasis had been placed on the need for agreement on proposals made under the Youth Employment Accord, which was brokered by Economic Development Minister Ebrahim Patel this year. This agreement was "nice to have", but could not take away the constitutional powers of the executive and Parliament.

Cosatu insisted during the hearings that the accord obliged government to reach consensus.

Mr Momoniat added that the consultations with Nedlac partners had resulted in numerous changes to the design of the incentive and how to treat abuses.

Amendments had also been introduced to align the proposed bill with labour laws.

Mr Momoniat conceded that there would be "deadweight loss" as a result of the incentive, which is that some employers would benefit even though they would have employed young people had there been no incentive. But this was inevitably the case with all incentives, he said.

Regarding Cosatu’s fear that older workers would be displaced as a result of employers opting to employ young workers in order to benefit from the incentive, Mr Momoniat said no evidence had been produced to support this. Not all workers were replaceable. He conceded that there would be abuses, but these had to be seen in proportion. They would be dealt with through enforcement and targeted penalties provided for in the bill.

The Treasury agreed to lower the entry age of eligible workers from 19 to 18 years, but to retain the upper limit at 29 years. Sole proprietors would be incorporated into the scheme, as well as part-time workers. It also agreed to include workers with an asylum seeker’s permit. However, the proposal that the applicable income limit be raised above the current R6,000 was not accepted.

The Treasury also agreed to increase the penalties, and accepted in principle the proposal to link the incentive with skills development and training over the long term, following consultations. Doing so immediately would limit employment, Mr Momoniat said.

Cosatu’s submission that special economic zones be excluded from the incentive was rejected.

A penalty of R30,000 would be imposed for each employee dismissed unfairly by an employer wanting to make use of the incentive.

It was important, Mr Momoniat said, that the viability of employers was not compromised by draconian penalties.

Penalties would also be applied where workers were not paid the stipulated minimum wages, one of the conditions attached to receiving the incentive. In this case the full amount of the incentive received would have to be repaid, plus a penalty of a further 100% of the incentive received for the months the employer was in breach.

Introducing yesterday’s media briefing, Mr Fuzile said the incentive was intended to stimulate demand for young workers, who had "few credible ways to signal to employers that they will be productive".

The cost of the incentive to the fiscus in tax revenue foregone from PAYE was estimated to be about R1bn annually over its initial life span of three years.

This article was first published on



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