Evaluating the success of the Employment Tax Incentive
Now that we’re just over halfway through the current legal life of the Employment Tax Incentive (ETI), it is opportune to consider whether the legislation has met its goal of creating new jobs for young people. The legislation is due to expire on 31 December 2016, so National Treasury and other government stakeholders will soon be debating whether it will be a good idea to extend it.
I am a strong supporter of the ETI because we need to urgently do something about youth unemployment in South Africa. Our youth unemployment rate is 52%, or four times the rate in sub-Saharan Africa as a whole, so it qualifies as a crisis. It demands that we take bold steps to resolve it.
As we take stock, however, there is reason to fear that some employers are profiting from the scheme by claiming the incentive for workers they would have employed in any case. In other words, they are benefitting from a taxpayer-funded tax break without necessarily creating new jobs. My interactions with employers suggest that there are some that are not adhering to its spirit. Rumours abound of employers who keep remuneration below R6,000 per month in order that their employees qualify and the employer benefits.
According to government, 29,000 employers had claimed R2 billion from the scheme for at least 270,000 young people employed between October 2013 and February 2015. But there are no reliable numbers about how many of these youngsters would’ve been employed even if the ETI scheme didn’t exist or what sort of training they’re receiving. However, I suspect government would be shouting from the rooftops about its success if these metrics were favourable.
Extend the ETI Legislation beyond 2016