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Is SA's tax incentive for young job-seekers working?

Aug 28 2016 11:30

Cape Town - The Employment Tax Incentive (ETI), which has already paid out R6bn, is being carefully assessed to decide whether it should be continued, refined or allowed to lapse, Treasury said in a statement.

The incentive that aims to stimulate employment of 18 to 29 year olds in the formal sector was legislated to continue until December 31 2016.

However, parliament requested a full review of the incentive in order to inform whether it should be continued, refined or allowed to lapse.

Treasury said government is currently engaging on these issues with other constituencies in the National Economic Development and Labour Council (Nedlac).

"The inputs for the review to assess the impact of the incentive will also include feedback from constituencies and affected parties and additional independent research using the tax data," Treasury said.

"If amendments are required to extend or alter the design of the ETI, a draft version of the legislation will be published in the next two months to allow for public comment and sufficient time for the legislation to be considered in Parliament."

The report, said Treasury makes use of a unique dataset made available to National Treasury by the South African Revenue Service for the purposes of policy evaluation.

It noted that the data is only available for the 2013/14 and 2014/15 tax years, due to the lags in tax data reporting.

"The dataset has not been used in this manner for detailed policy evaluation before, and as a result, significant attention is devoted to explaining the dataset in order to inform policy makers, social partners and interested members of the public."

The data suggest that take up of the ETI has been strong with the incentive already exceeding expectations.

"Since 2011, changes to the timing of spending, as well as slight differences in design have occurred, but broadly the estimates of jobs supported are higher than the initial 2011 projections," Treasury said.

In 2014/15, 32 368 firms lodged at least one claim on the ETI. Treasury said whilst this is a large number of firms, it represents 15% of firms in the tax database with eligible employees.

The ETI has been claimed for 134 923 jobs in 2014 and 686 402 jobs in 2015. Treasury said this implies the ETI supported approximately 5% of all jobs in the tax dataset based on individual employee tax certificates in the 2014/15 tax year.

The Treasury pointed out though that as with all incentive evaluations, changes in the external environment make it harder to assess whether the ETI created new jobs or prevented a further worsening in youth unemployment.

"It is not possible to use descriptive data to determine whether these supported jobs are new jobs created, jobs that have been saved from being lost or jobs that would have been created anyway."

To make this estimate, Treasury said it would be necessary to make assumptions about what might have happened in the absence of the ETI.

"Econometric studies provide a tool for doing this, but are beyond the scope of this paper. These reports will be made available to the public as they are completed."

Despite the tax incentive, South Africa continues to suffer from stubbornly high unemployment.

Youth employment for those aged between 20 and 29 decreased by 10.8% between the second quarter of 2008 and the second quarter 2016, even though the number in this age cohort has grown by 10.8% to 10.169 million, according to the Statistics South Africa Quarterly Labour Force Survey.

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unemployment  |  jobs  |  sa economy  |  taxes
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