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Tax incentive ‘put 270,000 in jobs’

Thursday, 15 January 2015   (0 Comments)
Posted by: Author: Natasha Marrian
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Author: Natasha Marrian (BDlive)

The Employment Tax Incentive Act had led to 270,000 people being employed, with 29,000 employers claiming from the scheme in the 12 months it had been in effect, the Treasury said on Wednesday.

The tax incentive was implemented in January last year with the aim of encouraging business to employ the youth — the group hardest hit by unemployment in the country.

The act reduces the cost to employers of hiring young people, with the government paying half of the costs.

It was a hotly contested law, with the African National Congress (ANC) alliance partner, the Congress of South African Trade Unions (Cosatu), vehemently opposed to it, arguing that it would see older workers displaced.

The federation said it would benefit employers most, who would hire young people at a fraction of the cost of older workers.

The law has been in place for a year so far — after a three-year battle over its earlier incarnation, the youth wage subsidy — with the ANC placating its ally by assuring it that the scheme would be under constant review and would contain checks and balances to prevent abuse.

Treasury spokesman Jabulani Sikhakhane said on Wednesday the initial take-up of the incentive by 29,000 employers was higher than anticipated by the government, marking a "positive start" for the legislation.

He said the incentive had resulted in the employment of 270,000 workers up to the end of December, bearing in mind that the last month of the year was generally slow in terms of companies hiring new staff.

"The initial take-up of the incentive has been higher than expected, which can be seen as a positive start," Mr Sikhakhane said.

However, a study by the Southern African Labour and Development Research Unit at the University of Cape Town found that the impact of the incentive was, "at best, small in magnitude" in the first six months of its existence.

"We also found no evidence that the rate at which youth find or lose employment has changed since the ETI (employment tax incentive) was introduced," the study reads.

It found there could be several reasons for this, the first being that more time was needed to assess the incentive. The second was that the way in which the incentive is implemented could be limiting its effects — it was probably aimed mainly at medium-size to large companies, excluding smaller ones.

Third, the value of the incentive might be too low to substantially affect firms’ hiring decisions.

Mr Sikhakhane said that while the initial take-up has been positive, more time was required to assess the overall success of the policy, which would depend on the number of new jobs created, future opportunities created and the progression of those employed as a result of the incentive.

The incentive would be reviewed next year when adjustments might be made to improve its effect, he said.

The main concern identified by Cosatu, of older workers being displaced, was addressed in the legislation itself, Mr Sikhakhane said.

"The draft legislation was amended to include penalties on employers if they were found to have displaced any workers, and employers are explicitly required to uphold all minimum wage requirements," he told Business Day.

The legislation allowed employers to claim for employees who joined them after October 2013. This was to prevent employers claiming for workers already hired before the incentive scheme took effect.

The Treasury would monitor the implementation of the incentive and had not ruled out changing it, should any "unintended consequences" arise.

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