After months of controversy surrounding the employment tax initiative scheme from labour unions and pundits, the policy has surprised many by providing relief for young job seekers.
In his latest and last budget speech under the current administration, Finance Minister Pravin Gordhan said the employment tax incentive, known as the ‘youth wage subsidy’ has “recorded 56 000 beneficiaries” in its first month of inception.
The Employment Tax Incentive Act, which came into effect on January 1, is a government bill to incentivise employers to create jobs for young workers.
This is in a bid to tackle South Africa’s significant unemployment rate, which according to Statistics South Africa’s latest indicator (Q4, 2013) is sitting at 24.1%.
Employers can claim the incentive for any employee between the ages of 18 and 29 who receives a monthly salary lower than R6 000 per month.
Though Gordhan did not go into detail about the beneficiaries, Karen Botha, senior manager in tax, specialising in employment tax at PwC said the 56 000 might represent the number of employers who have implemented the policy and not employees.
Young job seekers are at the heart of the scheme and policy consultant at the South African Chamber of Commerce, Pietman Roos, said beneficiaries may include recent matriculants and jobs seekers who have not been in the workforce for a while.
There is also no detail on which sectors of the economy are driving job opportunities for young people. According to economist at Economists.co.za Mike Schüssler, the sectors that may have absorbed young job seekers in the market are productive sectors such as the manufacturing, mining, agricultural and mining.
The scheme will run until December 2016, whereafter it will be reviewed. Roos also said he doubts that the incentive scheme will not end, largely motivated by the uptake of unemployed youths.
If the number of beneficiaries mooted in the budget speech is anything to go by, Roos said it might be indicative of the job opportunities to come under the auspices of the scheme.
Government has for a long time acknowledged Small Medium Enterprises (SMEs) as engines of job creation. In his speech Gordhan made special mention of tax relief initiatives that would aid small businesses with growth, which might ultimately lead to job creation.
Roos added: “This has the potential to kick start a revolution in venture capital and gives tax benefits to SMEs that need it”.
Government has set aside R800 million for the roll-out of the subsidy this year, to incentivise businesses which would offer job opportunities to job seekers. Schüssler said the government should invest more into the scheme which might possibly lead to “half a million” more beneficiaries in the first three years.
“It’s an amazing number. Basically that’s one area the state can increase its spending. The incentive takes care of the experience aspect of job seekers and a better chance to get a job later, he said.
With the youth wage subsidy in full swing, Schüssler expects “50-60%” of job seekers to have a better chance to get a job. “We should have tried this years ago”.
He added: “It would be a crowning glory, it would spice up life and show how desperate people are to get into the workforce. It’s a great story”
Despite government’s pro-SMEs interventions, such businesses continue to face a climate plagued by red tape and bureaucracy. There is a consensus that large firms are the ones driving the sheer number of beneficiaries to the youth wage subsidy, as they have the capacity to deal with the red tape than SMEs, Roos said.
With a growth rate of 2.7% targeted by Gordhan this year, Investment Solutions chief strategist Chris Hart said South Africa will need at least a 3% growth rate in order to drive up employment. He also said a “5-6% growth in investments” that amounts to 30% of gross domestic product is needed for the country to create quality.
Hart also said that there is a distinction between real jobs and job opportunities – the former is characterised by long-term, sustainable employment, while “job opportunities are all about consumption”.
South Africa needs to deal with real hindrances such as lack of savings, labour regulation and stability before “we implement such subsidies” Hart said.