Ever get the feeling that someone’s heart is in the right place but the plan they have to fix a problem will regrettably fail?
Andrew Murray from ECSECC, Chris Axelson from The Treasury Department and John Reynolds from the Rhodes University Neil Aggett Labour Studies Unit today took part in an Employment Tax Incentive discussion breakfast facilitated by the NMBBC and held at La Colline in Theesecombe this morning.
The newly introduced Employment Tax Incentive seeks to address South Africa’s increasingly large youth unemployment concern.
On the back of screamingly high unemployment, business scornful of the calibre of matriculants and an ever growing generation of youth lost to the formal sector it is a brave person that attempts to fix this within three years.
Let me say at the outset that the Department of Treasury’s newly implemented (1 January 2014) Employment Tax Incentive is a sharp arrow aimed at helping address an unemployment rate that hovers at 25% and refuses to budge down. But, when one compares that arrow to the rest in the quiver (education for one) I fear that the sharp new edge will quickly lose it’s lustre.
What the incentive needs is a huge uptake from business and an even larger buy in from those whom it is to benefit – the youth and employees in (still to be promulgated) SEZ’s. The youth need to be educated in the WIIIFM – What Is In It For Me or I fear that they will just see the incentive as a way to drive monthly wages down to the R2000.00 mark and for big business to take advantage of them for 12 months only (the benefit to business is halved for the second 12 months of employment and then capped at 24 months in total).
How does the employment tax incentive work?
- Government shares the cost of employment with employers by keeping the wage of the worker intact and reducing the cost of employment for the employer
- As a result of this labour demand intervention, employers can afford to employ more workers and afford to pay slightly higher wages for young, inexperienced workers due to cost-sharing
- Young employees do not receive any direct monetary benefit but should benefit from higher chances of employment, wages earned and a longer work experience – all in an effort to boost long term earnings.
The incentive value is based on sectoral determinations or bargaining council agreements or firm level agreements on minimum wages. If no determination exist, at least R2 000 pm
Incentive Tax Examples:
- At R1000 per employee income per month the employer can claim R500.00 off of PAYE
- At R1 500 employer claims R750.00
- From R2000 to R4000 employer claims R1000.00 per employee
- Down to nothing at the R6000 per month salary scale.
If the claimed amount exceeds the PAYE amount then it can be carried over. Under development with SARS is a system whereby re-imbursement will take place – this is to encourage smaller businesses to take part.
I wonder about companies that have a huge PAYE bill monthly (yes there are local companies that pay in excess of R1 Million rand a month in PE!) – will they be moved enough to implement controls and additional admin staff to claim the Employment Tax Incentive? Even if such a company employs 20 youths under this scheme one wonders if the R20 000 maximum that they can claim per month will be worth the effort?
If one has to consider the cost of training new people – then the business case begins to look more and more like charity.
Lest we forget – “Business is in the business of business and not in the business of training or charity!” Schools, Universities, Colleges and the like are in the business of training.
Treasury unfortunately needs to:
- Make this incentive ‘sexy’ to get a buy in from the country
- Encourage other less glamorous departments such as Education to ‘sharpen up’
- Sell the incentive to the youth and SEZ’s
- Sell the incentive to small and labour intensive business
- Present a sound business case to large business.
Of course the devil’s advocate in me whispers; “It is an election year and the youth vote is important!”
At the end of the day – Treasury needs to be admired for being upfront about their ‘experiment’ that has a 3 year life span and will then be re-evaluated, so well done for trying to solve a problem. By the same token our education department needs to revert to being a custodian of excellence that always seems to be muddling along with logs in their eyes.
The score so far: Treasury: 10 vs Education: 0
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