During his budget speech in 2011, Minister Gordhan announced a range of measures government would undertake to tackle the high unemployment rate – especially unemployment among the youth. One of these measures was an incentive scheme for firms called the ‘youth wage subsidy’ (‘the subsidy’), which was to be implemented by April 2012. The rationale for a subsidy was to make the hiring of unemployed youth cheaper for businesses which would not ordinarily have hired unemployed youngsters.
The subsidy would be administered by the South African Revenue Services (SARS) in a similar way to pay‐as‐you‐earn tax (PAYE). Those businesses which wanted to claim the subsidy must be formally registered with SARS, be registered on the PAYE and Unemployment Insurance Fund (UIF) systems, and have their tax affairs in order.
All South African citizens between the ages of 18 and 29 would qualify if they were unemployed and then hired into a new job. In the first year government would subsidise 50% of the wage if the wage earned was less than R24 000 per annum, decreasing to 20% in the second year. The percentage of the subsidy would decrease progressively, reaching zero at the personal income tax threshold of R60 000. The subsidy would also have been made available to businesses already employing workers aged between 18 and 24. These workers would have been eligible for a subsidy for one year, at 20% of their wage if earning R24 000 or less, and tapering to zero at the personal income tax threshold.
According to the National Treasury 3 estimates, the programme would have subsidised 423 000 workers (at a cost of R5 billion to the fiscus), including 178 000 jobs that would not have been be created without the subsidy. It was further estimated that some 45 000 workers would drop out of the labour force after having benefited from the programme, so the net result would be 133 000 more people employed by 2015, when the programme would end. Furthermore, the National Treasury argued that each of these new jobs would cost approximately R37 000.4 Other estimates differed (according to Standard Bank, the cost per job would have been R27 900), but there was broad agreement that the subsidy would be far more cost‐effective than any other government job creation initiative.
The youth wage subsidy was, however, not implemented in 2012 due to opposition from Cosatu, which cited a number of contentious points (see below). The implementation of the subsidy was stymied as the negations between labour, government and business failed to find solutions at the National Economic Development and Labour Council (Nedlac). It seemed that government would not go ahead with the subsidy after the Economic Development Minister, Ebrahim Patel, brokered a youth employment accord at Nedlac which excluded a wage subsidy. However, during his 2013 budget speech, Minister Pravin Gordhan, announced that ‘a revised youth employment incentive will be tabled in the House [by July], together with a proposed employment incentive for special economic zones’. According to the Minister, the revised employment incentive has taken cognisance of the contentious points made by labour at Nedlac.
The revised version of the wage subsidy will now be referred to as a ‘youth employment tax incentive’ and it will retain many of the principles of the original wage subsidy. The final details of the incentive scheme are still not finalised, but it will operate through the tax system (as originally planned), with employers of qualifying employees paying less in payroll tax. The tax deduction would be up to 50% in the first year and 20% of the wage in the second 6 . An employer would be allowed to claim back an amount of up R1000 a month for every salary paid to targeted workers. The new youth employment tax incentive will also allow employers with operations in special economic zones7 to claim the incentive for new hires of any age.
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