South Africa’s success depends on whether all of its people have the opportunity to live a decent life. Unemployment undermines people’s hope for a better life.
While the government has a role to play in slashing unemployment and has indeed pledged to do so, the government alone cannot solve the problem.
The private sector is twice the size of the government and employs three times as many people. So the government and the private sector need to be partners and share the costs of employing unskilled youth. That is what the employment tax incentive (ETI) seeks to do: bring the government and the private sector together to fight youth unemployment.
The government cannot sit back and hope that the 50 percent unemployment rate among those under the age of 30 can be addressed simply by market forces alone. Incentives are meant to get parties to do what they would not normally do, or encourage them to do more of those things deemed desirable.
Judging by the high youth unemployment numbers, the participation of young people in the labour market is way below desirable levels. Several reasons have been given for this, but the one that we seek to address with the ETI is the view that taking a chance on young, inexperienced workers can be a costly exercise.
With the ETI, outside the special economic zones (SEZs), the government will share with the employer the cost of absorbing the youth in a manner that leaves the wage that the young employee receives unaffected.
Employers who are registered for tax will be eligible to decrease their PAYE employee tax for hiring employees between the ages of 18 and 29 who possess a South African identity number. These workers must receive a salary that is between the minimum wage for that specific firm or sector and R6 000 a month. A minimum of R2 000 applies where no wage determination is applicable. Employees stay eligible for the incentive for a period of two years, even if they change employers.
One of the good comments we have received on the ETI is that it should also seek to encourage employers to train the young people they employ, so that they acquire skills that make them more employable. We support this! We will look at ways of balancing the desire to impart more skills to young people, while keeping the scheme as simple as possible.
The age restriction will not apply to businesses within SEZs. The government has taken care not to add an administrative burden with this incentive, so the SA Revenue Service (Sars) is ready to assist the private sector in administering the incentive.
The first two years of employment will be covered by the incentive. The value of the incentive is prescribed by a formula, which has three components for different wage levels.
For monthly wages above sectoral minimums but below R2 000, the incentive value is 50 percent of the wage. For monthly wages ranging from R2 001 to R4 000, the value of the incentive is R1 000 per month per qualifying employee. The value of the incentive tapers down from R1 000 to zero for monthly wages between R4 001 and R6 000. In the second year of employment, the value of the incentive is halved.
The maximum quantum of the incentive was set to cover 25 percent to 50 percent of a worker’s cost-to-company, which is significant inducement to hire young workers. For example, an employer could reduce its PAYE obligations by up to R10 000 a month for taking on 10 young workers at wages between R2 000 and R4 000 a month.
The incentive is expected to be ready in time for those who will leave school at the end of this year and will be effective from January 1 and end on December 31, 2016. But we are eager for young people to enjoy the benefits of employment, so employers will be able to claim the incentive for employment that commences after October 1 this year.
There is no cap on the amounts that can be claimed, but an employer will not be able to claim more than the amounts owed to Sars for employees’ tax.
It is envisaged that Sars will devise a system over the next year for reimbursement of employees with insufficient PAYE liabilities to offset the incentive.
Employers that do not meet their legal obligations to employees or abuse the incentive will be penalised.
As I have said, the determinants of demand for labour are numerous. This programme seeks to address only one aspect, namely, the lack of work experience on the part of young job seekers.
The National Youth Accord outlines a broader set of interventions to rectify other inefficiencies in the youth labour market.
South African companies have proven that they can survive under tough market conditions since the global economic crisis. It is the hope of the government that this incentive can extend this resilience into the future by offering a new generation of workers the opportunity to contribute productively to our economy.
Employers stand to gain much: the value of the incentive pales in comparison with the long-term value of a young, productive workforce.
We want to challenge the private sector to take on this incentive and give the youth a chance. We plan to review the process before 2016. This signals a new, experimental approach in policymaking and we are painfully aware that the hard work will only start once the incentive gets off the ground.
When we have enough experience and data to inform the review process, we can improve the design and targeting. What we cannot afford is a further delay in employing young work seekers. We all owe it to them to give the ETI our best shot.
The draft Employment Tax Incentive Bill and supporting documentation are available on the websites of the National Treasury (www.treasury.gov.za) and the SA Revenue Service (www.sars.gov.za).
* Lungisa Fuzile is the director-general of the National Treasury.