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Government’s solutions for youth unemployment: false, inadequate, doomed to fail

In December 2013, President Zuma signed the Employment Tax Incentive Bill, making it an Act of Parliament. In February 2014, the Minister of Finance claimed that 56,000 beneficiaries had already been recorded since the implementation of the incentive early this year. So why is the National Union of Metalworkers (NUMSA) opposed to this Act that seeks to provide jobs for thousands of unemployed young people throughout the country?

You might reasonably ask whether those opposed to NUMSA are justified when they claim that the union’s position is nothing more than ideological, selfishly motivated and narrowly focused on protecting just the interests of their members. The answers to these questions are many and varied. But first a brief look at the Act.

The Employment Tax Incentive Act seeks to provide employment to young work seekers between the ages of 18-29 and to unemployed workers in Special Economic Zones (SEZ’s) and in industries designated by the Minister of Finance. Eligible employers have to be registered and in good standing with the South African Receiver of Revenue. Employers will not receive an incentive for workers earning more than R72,000 per annum; nor will they be eligible to receive the incentive if older workers are displaced on account of their age. No age restrictions apply to SEZs or designated sectors and the incentive to employers is limited to R1,000 for subsidised workers earning between R2,000 and R4,000 per month over the first twelve months. Thereafter the incentive is halved (50%) over the next twelve months. In sectors that are not covered by bargaining council agreements, sectoral determinations or collective agreements, employers have to pay a minimum wage of R2,000 and there is no mandatory requirement to provide benefits other than that prescribed by law, e.g. UIF.

In October 2013 the Congress of South African Trade Unions (COSATU) and NUMSA raised a number of concerns on the draft Employment Tax Incentive Bill that was tabled before the Standing Committee on Finance and called on Parliament to withdraw the Bill. NUMSA argued that the Bill would in practice be a fundamental attack on workers’ security of employment, decent work standards and collective bargaining rights and would lead to a downward pressure on wages, as there would be considerable difference in costs for employing unsubsidised workers as opposed to subsidised workers. The union went on to argue that:

  • The implementation of the measures in the Bill would lead to displacement of older or unsubsidised workers;

  • The provisions of the Bill against employers who “unfairly” dismissed an existing employee to get access to the tax incentive for a new employee were inadequate;

  • Workers at which the subsidies were targeted would have rights and benefits that were minimal or would have nothing at all. Subsidised workers would be excluded from accessing other employment benefits and conditions such as retirement benefits, medical aid and leave;

  • None of the subsidies in the Bill were tied to mandatory skills development or training for subsided employees;

  • The legislation inadvertently permits a multi-tiered labour market where workers do the same work but have different wages and benefits.

In finalising the Bill and turning it into an Act of Parliament, there have been attempts by government to deal with some of the concerns that labour raised. Here are some of the responses that appeared in the revised Bill that Parliament passed and that the President signed into law on 18 December 2013:

  • The final Act recognises company or plant-based collective agreements;

  • According to the final Act, an employer who pays or offers terms or conditions that are less than what is agreed by virtue of a wage regulating measure in a bargaining council agreement, collective agreement or sectoral determination “is not eligible to receive the employment tax incentive”;

  • The final act makes reference to “conditions based on requirements in respect of the training of employees” that “the Minister of Finance, after consultations with the Minister of Labour, may prescribe by regulation” and that are the basis of employer disqualification if not met or adhered to.

However, when NUMSA launched the fight against the wage subsidy and the Employment Tax Incentive Bill, this was not about just selfishly protecting our jobs and conditions of employment or those of our members. We had principled objections to the legislation. Although government has attempted to deal with our concerns and that some of the consequences in the implementation of the statute may not occur in our sectors, as NUMSA we believe that the new tax incentive scheme is just another false solution to the problem of youth unemployment because:

  • Instead of introducing measures that will force bosses who are sitting on stashes of cash to invest in employment generating activities, the government proposes to take workers’ taxes and give them as incentives to the very same bosses that are on an investment strike;

  • The wage subsidy will not promote skills development, as there is no mandatory training for subsidised workers;

  • Wage subsidies reduce the amount of money that governments are able to raise through taxes and thereby negatively affect government’s capacity to provide basic services.

As for the 56,000 beneficiaries that have been recorded since the implementation of the incentive, there are a number of questions that have yet to be answered: whether these ‘subsidised’ jobs are newly created jobs or jobs that would have been created anyway (deadweight jobs), workers displaced in the process of creating these jobs and whether these subsidised workers have access to benefits and conditions of employment that go beyond the prescribed minimum benefits such as UIF. While Treasury has argued that the Act is nothing more than an experiment to make possible the entry of youth into the labour market and that corresponding regulations will be put in place to beef up the monitoring and enforcement of the Act, NUMSA is not convinced that the tax incentive will solve the unemployment crisis in our country. As stated in our submission, the philosophy of the Employment Tax Incentive Act is that grants to the poor are bad but good for capitalists. The government is prepared to forego revenue to entice the capitalist class to create jobs. This is the same capitalist class that speaks about how social grants create dependency and are unsustainable. The Act is being implemented by a government that has thus far refused to implement the Basic Income Grant.

The Secretary-General of the ANC, Gwede Mantashe, is also being disingenuous in his criticism that as union we accept incentives for the capitalist class in the automotive industry through the Automotive Production and Development Programme (APDP), but refuse subsidisation of unemployed people. As NUMSA we have never been selective in our criticisms about government incentives and this applies to the former Motor Industries Development Plan (MIDP) and to the APDP as well. The APDP works differently from the employment tax incentive scheme. Yes, through the duty-free import credits the state foregoes some revenue for the fiscus, but this is different from asking the working class to subsidise capitalists. The incentive scheme in the Act uses PAYE and avoids touching profits. Mr. Mantashe also conveniently forgets that the APDP, through NUMSA’s intervention, has other components such Vehicle Assembly Allowance (VAA) and Production Incentive (PI) that promote local production and local assembly. Our support for APDP and opposition to the Employment Tax Incentive Act is not double speak or opportunism. Our support for the MIDP and now APDP is premised on our overall objectives of job creation, localisation and creation of decent jobs.

There is also the issue of ACTUALS and MINIMA wage rates that the drafters of the Act failed to consider. We know from our experience the challenges of differences between actuals and minima. In these situations and in the implementation of the Employment Tax Incentive Act, eligible employers can bring in qualifying employees and pay them minima in the agreements. The implications for a two-tiered labour market therefore remain with one group of workers on actuals and subsidised workers on minima.

The unfortunate part about the Employment Tax Incentive Act is that its architects are silent about the “investment strike” by the private sector that has been going on in South Africa for a while. It is this problem of the capitalist class’ refusal to invest that the designers of the employment tax incentive scheme refuse to tackle head on. It is this avoidance of the real problem that leads them to false solutions such as the tax incentive scheme.

There are no mandatory provisions for training in the Act and the Minister may or may not prescribe regulations requiring training or skills development. The operation of the Act is not contingent and dependent on the enactment of these regulations. So the Minister may delay or impose this condition for limited sectors only, noting that it was a conscious choice of Treasury to exclude mandatory skills training.

Even though the drafters of the Act claim that workers will be protected by labour legislation, the dangers of displacement are not totally eliminated as nothing prevents employers, especially larger ones, from creatively reorganising work at a workplace so that subsidised workers are not placed in a unit where the dismissal takes place.

As NUMSA, we still maintain our view that the Act should have been tabled in NEDLAC, as it is a socio-economic policy. This is what the NEDLAC Act requires. This was also the commitment in the Youth Employment Accord.

Our critics have much to answer for. Notwithstanding our S77 application that was lodged in NEDLAC stating our opposition to the Bill, Parliament approved the Bill so that by the time we got to NEDLAC, the Bill was already an Act of Parliament waiting to be implemented. Having failed to make any political intervention to stop Parliament from passing the Bill, some in the labour movement have sheepishly agreed to engage Treasury if and when the regulations appear before NEDLAC.

As for NUMSA, we will continue to mobilise our members and allies from the ranks of social movements and progressive independent trade unions, and today, 19 March 2014, we will say to government and business – with one voice – that we will continue to campaign for youth jobs against false solutions. DM

Irvin Jim is the general secretary of the National Union of Metalworkers of South Africa (NUMSA).


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