The Treasury is proudly, but falsely, claiming that the Employment Tax Incentive (ETI – previously known as the Youth Wage Subsidy) has led to 270,000 people being employed, with 29,000 employers claiming from the scheme in the 12 months it has been in effect.
The ETI, to which the Congress of South African Trade Unions has been resolutely opposed, aimed to encourage businesses to employ new, unemployed workers below 30 years old, through a tax deduction, to the value of half of the cost of hiring the young workers for the first two years of employment.
Treasury spokesman Jabulani Sikhakhane boasts that the 270 000 take-up, is higher than anticipated by the government, marking a “positive start” for the legislation.
If there was any truth in this claim that so many new jobs for youth had been created, COSATU might have had to eat its words, and welcome this initiative. Sadly however the Treasury’s claim has no basis in reality.
The federation’s view was that the ETI was nothing more than a tax-payers’ handout to subsidise employers for taking on workers they would have employed anyway. Older workers who did not qualify for the subsidy would be replaced, causing downward pressure on wages, employers would not have to provide any training for the young workers, at the end of the two years the workers would be thrown back into unemployment and there would be no drop in the level of youth unemployment.
This view has now been confirmed by to new research – by Vimal Ranchhod and Arden Finn of the University of Cape Town’s Southern Africa Labour and Development Research Unit, in a paper entitled lsquoEstimating the short run effects of South Africa’s Employment Tax Incentive on youth employment probabilities using a difference-in-differences approach’.
Their research has proved that the ETI is a failure: ldquoIt did not have any statistically significant and positive effects on youth employment probabilities”. They ldquofound no evidence that the rate at which youth find or lose employment has changed since the ETI was introduced”.
The Treasury initially claimed that the ETI would create 423,000 new jobs of which 178,000 would be “net” new jobs that would not have been created without the subsidy, but this research establishes what it calls ldquoa fairly precisely estimated ‘zero effect’.”
“In the first six months since the introduction of the ETI, we find no evidence that the ETI had any substantial, positive and statistically significant effect on aggregate youth employment probabilities.”
The authors confirm COSATU’s prediction that the ETI is a very expensive government subsidy to businesses, with very limited impact. They give the example of a firm that was planning on hiring 50 youth anyway. It would receive R50 000 in tax relief for doing nothing differently. The question is then whether it would hire a 51st young person. If it did government would essentially be paying a firm R51 000 per month to hire one new young person at R4 000 per month.
The researcher’ results show ldquothat any decrease in tax revenues that arise from the ETI are effectively accruing to firms which, collectively, would have employed most of these youth even in the absence of the ETI.”
They conclude that “the lack of effectiveness of the ETI has implications for the efficacy of policy from a public finance perspective… [I]f there is substantial take up of the incentive for employment that would have arisen even in the absence of the ETI, this represents a pure transfer from taxpayers to a subset of firms who are not doing anything differently. These transfers have opportunity costs, and it is difficult to believe that this is desirable from a policy perspective.”
COSATU demands the immediate scrapping of the ETI and its replacement by genuine measures to defuse the ticking bomb of unemployment among young South Africans.
The unemployment rate among youth [15 to 34] increased from 32.7% in 2008 to 36.1% in 2014. The youth unemployment rate has, on average, been 20% higher than that of adults. Youth make up 52% to 64% of the working population, yet account for only 42% to 49% of those with jobs.
One of the most worrying revelations in the report is the high incidence of long-term youth unemployment. In 2014, close to two-thirds of young people were unemployed for a year or longer, while young people accounted for 90% of those who are unemployed and have never worked before.
This huge level of joblessness among young people is not only a tragedy for the young people themselves, who are left with no chance to earn an income and build a career, but for society as a whole, who could benefit so much from the contribution these thousands of young workers could make to the economy.
It creates a layer of angry, frustrated young people who will not indefinitely put up with this assault on their basic right to a job and an income. The government and society as a whole have to treat this situation as a national emergency, and a top priority for government and society.
Many of the policies we need to resolve the problem are already in place on paper – both long-term and short-term – but are being rolled out far too slowly.
In the medium to long term we have to move with greater urgency to complete the 2nd Phase of the Democratic Transition, through programmes like the Industrial Policy Action Plan and the infrastructure development programme, in order to restructure our economy from one over-dependent on the export of raw materials into one based on manufacturing industry.
In addition we must pursue COSATU’s demands for other macro-economic changes, including:
– Decisive state intervention in strategic sectors of the economy, including through strategic nationalisation and the use of various macro-economic and other levers at the states disposal
– An overhaul of our macro-economic policy – Treasury to be urgently realigned and a new mandate to be given to the Reserve Bank, which must be nationalised
– The National Planning Commission to be given a renewed mandate, to realign the National Development Plan (NDP), in line with the proposed radical economic shift, and purged of its neoliberal, free-market policies, which, in their earlier guise as GEAR, were the main cause of our current crisis of unemployment
– Aspects of the New Growth Path to be realigned in line with the new macro-economic framework.
– All state owned enterprises and state development finance institutions to be given a new mandate.
– Urgent steps to be taken to reverse the current investment strike and export of South African capital – including capital controls and measures aimed at prescribed investment, and penalising speculation.
– The urgent introduction of comprehensive social security and a national minimum wage.
At the same time we have to much more quickly implement the many short-term solutions, including policies in the Youth Employment Accord, signed in 2013 by government, business and labour, which will create jobs in such areas as:
– Service delivery to poor communities,
– Environmental improvement projects such as installing solar heaters,
– Expanding home-based care and wellness education as part of the NHI,
– Expanding adult literacy training.
This Accord did not even mention the ETI. The millions of rands of tax-payers’ money to the big employers, to incentivise them what they should be doing anyway – employing and training more young workers, would be far better spent to fund these projects in the Youth Employment Accord.
Patrick Craven (National Spokesperson)
Congress of South African Trade Unions
110 Jorissen Cnr Simmonds Streets
Tel: +27 11 339-4911 Direct 010 219-1339
Fax: +27 11 339-6940
Mobile: +27 82 821 7456
Source : Congress of South African Trade Unions