10 Concerns about the Employment Tax Incentive Law which introduces a Youth Wage Subsidy for businesses

Equal Education (EE) has serious concerns about the Employment Tax Incentive Act signed into law on Wednesday by President Zuma.

In November EE made two submissions, and met with Treasury on this issue. EE's final submission can be read here.

EE Chairperson Yoliswa Dwane comments: "The law is unlikely to have a significant effect on youth unemployment, a gigantic problem facing South Africa and the global economy as a whole. In South Africa approximately 3,4 million (32,9%) of the 10,4 million youth aged 15 - 24 are not in employment, education or training, according to the latest Quarterly Labour Force Survey. Any move to improve the situation should be welcome, but we are concerned that the Bill fosters illusions about how youth unemployment in South Africa can be addressed."

The Act introduces what has usually been called a Youth Wage Subsidy. It is an amount which will be given by government to private businesses. Businesses will earn the amount for each worker they hire who is aged 19 to 29 and is earning between R2000 and R6000 per month. This applies for two years, with the amount being halved in the second year. For a worker earning between R2000 and R4000 per month the amount paid by government to the business is R1000. For a worker earning over R4000 the amount decreases. Businesses receive the amount as a deduction from what they pay over in income tax on behalf of their employees each month. The scheme is therefore administered by SARS and businesses need to be registered with SARS to qualify. The government says the scheme will promote employment of low-skilled young people.

In our submission EE outlines ten serious problems with the law. The submission is an extensive engagement with a large volume of the published researched on this topic. The ten sections of the submission are:

PROBLEM 1. On the available evidence the likely impact on unemployment is fairly low.
PROBLEM 2. To reduce unemployment we need a growing economy.
PROBLEM 3. There is a danger that the subsidy can cause displacement of existing workers, also known as substitution or ‘churning'.
PROBLEM 4. The result of the subsidy could be to put downward pressure on all wages.
PROBLEM 5. What else could usefully be done with the money?
PROBLEM 6. The subsidy is not necessarily linked to any training.
PROBLEM 7. The subsidy discriminates against informal businesses and small low-wage businesses.
PROBLEM 8. The period allowed for public comment was too short.
PROBLEM 9. No structured process to evaluate the youth wage subsidy has been announced.
PROBLEM 10. The youth wage subsidy proposed by the Employment Tax Incentive Bill creates illusions.

We suggest reading the submission, because it gives detailed arguments for each of the above points.

Brad Brockman, EE's General Secretary wrote an op-ed on the law available here.

Brockman also comments: "The indications are that the Act will fail in its stated purpose of creating additional youth employment without jeapordising existing jobs. What is needed is a serious plan to expand the economy. Thus instead of addressing the underlying challenges of unemployment the Act represents a serious threat to existing older workers and does not provide a durable opportunity for the youth of South Africa."

Statement issued by Equal Education, December 19 2013

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