The National Treasury is reviewing the labour market activation and public employment programmes across government — there are more than 100 in over 20 public institutions — with a view to consolidating and rationalising them.
The numerous public schemes to promote employment include the Expanded Public Works Programme, the community works programme, the presidential employment initiative, the temporary employment relief scheme and the Employment Tax Incentive (ETI), among many others.
With an unemployment rate on the narrow definition of more than 30%, such focused attention on one of the gravest challenges facing the country is essential. Evaluations of some of the programmes suggest that they are not achieving their desired outcomes, which makes the review by the Treasury all the more necessary.
The review of labour market activation programmes is also being undertaken in a bid by the National Treasury to find a possible alternative to the basic income grant demanded by NGOs and civil society as a permanent replacement for the social relief of distress grant.
While these programmes assist in job creation on the margins, the obvious engine for higher employment will be higher rates of economic growth.
One hopes this review by the National Treasury includes an assessment of the ETI, which also has had inconclusive results. The incentive, which was introduced in 2014, is due to terminate only at end-February 2029 but that doesn’t preclude a review now. Parliamentary committees endorsed the recommendations of Nedlac partners that the incentive be extended from 2019 to 2029.
The ETI is a form of wage subsidy to encourage employers to employ youth aged between 19 and 29 in the context where youth unemployment for those between 15 and 24 is nearly 60%. The incentive lowers the cost of labour for employers by lowering their monthly PAYE liability without lowering the wages of workers.
The incentive cost the government R7bn in 2020/21, R6bn in 2021/22 and R4.8bn in 2022/23. The 2025 Rates and Monetary Amounts and Amendment of Revenue Laws Bill amended the formula to calculate the incentive and the income bands, but the value of the incentive was retained at a maximum of R1,500 a month in the first 12 months and R750 a month in the second year of eligibility.
Cosatu, one of Nedlac’s key partners, has questioned whether the ETI should continue, expressing concern that despite billions of rand spent on it, “evidence of it having helped create jobs can’t be found”. It has urged a comprehensive review of the various government incentives and subsidies to evaluate what is working and what is not.
On the other hand, Business Unity South Africa is adamant that the incentive should be retained as it has a net positive impact, assists employers with their payrolls and encourages them to employ young people. What business does want, however, is for the value of the incentive to be increased in line with inflation to make it more meaningful. The hospitality sector and call centres in particular make extensive use of the incentive as they employ a lot of young people.
Finance minister Enoch Godongwana agrees that the ETI has not had a significant impact on youth unemployment apart from micro-level gains that have not translated into large macro-level reductions in youth unemployment. The minister noted in a written reply to a parliamentary question that the findings from many independent empirical studies into the effects of the ETI had been mixed, with some reporting modestly positive effects on youth employment and retention and others finding no statistically significant impact.
A 2019 review of the literature on the incentive by the Reserve Bank noted that most independent studies of the effectiveness of the ETI had found a positive but small impact on youth job creation compared to preliminary estimates.
A review of the incentive and whether it should be terminated or improved on is vital given the sums spent by the government and the uncertainty over its effectiveness.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.