The implications of employment tax incentive on workplace law in South Africa

Abstract

One of the most pressing socio-economic ills currently plaguing South Africa is that of youth unemployment, hence the government saw the need to devise mechanisms in order to address the crisis. The National Development Plan as a road map paved the way for the adoption of the employment tax incentive scheme, firstly introduced as the youth wage subsidy. The initiative has been met with stiff resistance since it was introduced as the Youth Wage Subsidy in 2011. It was then re-introduced as the employment tax incentive scheme and legislated under the Employment Tax Incentive Scheme Act 26 of 2013. Critics such as COSATU have argued that the scheme might lead to substitution and displacement of older, existing workers in the workplace. The National Treasury as well as some writers have refuted this suggestion and emphasised that the scheme will lead to job creation for the youth and acquiring of skills. In light of this, this study explores the implications of the employment tax incentive scheme on workplace law in South Africa. The research by the Southern Africa Labour and Development Research Unit contributed much in giving insight into the employment tax incentive scheme. That study identifies negative effects such as ‘deadweight loss’ and also indicates that there has not been any significant change to the employment rate. However, the benefits of the scheme have also been elucidated to the effect that the scheme helps to train and provide skills to young job seekers. The comparative study on Germany’s employment schemes provided lessons for South Africa. The major findings of the study are that the employment tax incentive has been successful in creating employment though the magnitude is small. Deadweight loss is a major setback to the implementation of the employment tax incentive. Lastly, no substitution or displacement effects have been validated by available evidence, however, the concerns remain justified. It is hoped that this study makes a modest contribution to these on-going debates.