Use tax incentives to create more jobs – World Bank | Fin24

Use tax incentives to create more jobs – World Bank

Jan 22 2017 07:56
Justin Brown

Johannesburg - Investment in capital such as machinery and equipment has been progressively replacing jobs in agriculture, mining, manufacturing and construction, a World Bank report, released this week, has claimed.

Marek Hanusch, a senior economist for South Africa at the bank, said since the advent of democracy in 1994, the ­local economy had become more ­capital intensive.

According to the ninth edition of the bank’s SA Economic Update report, “since 2008, investments in manufacturing have decelerated, [while they have] accelerated in the electricity sector”.

The report went on to claim that since 2012, the economic gains of capital reallocation had turned negative because of declining investment in the manufacturing sector.

Turning to South Africa’s tax incentives, it said reorienting investment towards sectors of the South African economy that had high productivity and a ­comparative advantage would stimulate growth, create jobs and reduce poverty.

In the report it was argued that shifting local investment tax incentives in ­favour of agriculture, manufacturing, construction, trade and other services would increase job creation at no extra fiscal cost since these sectors were the most responsive to investment tax ­incentives, as were sectors with the ­largest employment multipliers.

Ismail Momoniat, Treasury’s deputy director-general of tax and financial sector policy, declined to comment on the report, saying government would deal with its tax policies in Finance Minister Pravin Gordhan’s budget speech, to be delivered on February 22.

Hanusch said the state’s investment tax incentives may have contributed to capital moving to less productive sectors.

“Manufacturing makes 3.4 times higher social returns than mining,” he added.

World Bank programme leader ­Sebastien Dessus said based on research from 2006 to 2012, the state was, in ­effect, subsidising the mining sector through tax incentives, such as allowing the industry to depreciate its plant and machinery 100% over a year, compared with other sectors where plant and machinery was depreciated over four years.

“The mining and tourism sectors ­enjoy very large tax advantages compared with other sectors,” the World Bank report said.

Manufacturing had by far the largest indirect job creation component.

Hanusch said the weakening rand was discouraging imports and encouraging exports, but rand unpredictability was hampering investments.

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