Youth wage subsidy on cards

28 February 2013 - 02:14 By THABO MOKONE and CAIPHUS KGOSANA
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Finance Minister Pravin Gordhan. File picture
Finance Minister Pravin Gordhan. File picture

Finance Minister Pravin Gordhan has effectively rammed through the controversial youth wage subsidy, despite fierce opposition from the ANC's alliance partner, Cosatu, and youth formations linked to the ruling party.

Introducing his spending plans in the National Assembly yesterday for the 2013-2014 financial year, Gordhan announced a new employment tax incentive to encourage the public sector and private companies to hire first-time job-seekers, most of them likely to be between the ages of 19 and 29.

The employment incentive would be a tax deduction of up to 50% of the wage paid to workers hired under the scheme.

The state's maximum contribution to the salaries of young workers will be R12000 a year.

Oupa Magashula, the commissioner of the South African Revenue Service, told The Times that, in terms of the youth employment incentive scheme, employers would be allowed to claim back an amount of up to R1000 a month for every salary paid to targeted workers. This they would do through the Pay As You Earn Tax system.

"In essence it says that, if you pay your new employee, who will probably be an intern, R24000 a year, the state will subsidise you to the amount of R12 000, so you pay 50%," said Magashula.

President Jacob Zuma first mooted the idea of a youth wage subsidy in his State of the Nation address in 2010. Labour federation Cosatu has been the most vocal critic of youth employment incentive schemes, saying they would encourage companies to lay off older workers.

National Treasury later budgeted R5-billion for the subsidy but it stalled at the National Economic Development and Labour Council - where government, business, and labour discuss economic policy - as there was no agreement as to what form it would take.

But the National Treasury, quoting from research undertaken by the African Micro-Economic Research Unit at Wits University, said it had found no scientific evidence to back up the claim that the youth wage subsidy would cause older workers to lose their jobs.

"The majority of firms said they would not replace older workers with younger ones if there was a youth employment incentive - in part because older workers are more reliable and experienced," it said in its main budget review document.

Gordhan said that, following extensive consultation at Nedlac, he would present the youth employment incentive scheme for tabling in parliament.

"The introduction of this tax incentive, which takes into account the concerns of organised labour, will help young people to enter the labour market, get valuable experience and so access career opportunities," he said.

The Progressive Youth Alliance - a grouping of youth bodies such as the Young Communist League, student organisations SASCO and COSAS and the ANC Youth League - has advanced reasons similar to those of Cosatu in their rejection of the youth wage subsidy.

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