Job Incentive Bill To Include ‘Tough Penalties’

Author: Linda Ensor (BDlive)

The proposed employment tax incentive would include tough penalties to prevent abuse by employers, Treasury officials said in Parliament on Tuesday.

The incentive, which will ensure that government shares the initial cost of hiring with the employer to boost job creation among the youth, will come into effect from January 1 2014 but will apply to workers who are eligible from October 1.

The incentive would last for three years until December 2016, and if successful, would be extended, Treasury deputy director-general Ismail Momoniat told Parliament’s standing committee on finance during public hearings on the Employment Tax Incentive Bill.

In terms of the scheme, employers will utilise the incentive by setting it off against their PAYE obligations.

The proposed punitive measures are intended to address abuse as well as the concerns of the Congress of South African Trade Unions (Cosatu), which is fiercely opposed to the incentive that it says will result in displacement and a two-tiered labour market and prejudice workers aged over 30 years.

The bill proposes that the incentive would not be available to employers who did not meet their legal obligations towards employees, including complying with minimum-wage requirements and if their hiring policy was to the detriment of employees.

Treasury legal tax design director Beatrice Gouws told MPs that a finding of the unfair dismissal of employees for the purpose of employing young people eligible for the incentive would result in the employer being disqualified from the scheme for its entire duration. Arbitrary grounds for dismissal would include the age of the employee and whether they were not South African nationals.

In addition, a penalty of 150% of the total incentive claimed for the previous 12 months would be imposed.

Ms Gouws explained that the incentive would only be calculated for incomes above sectoral determinations on minimum wages. “Employers who do not adhere to determinations will be disqualified,” she said.

If no sectoral determination existed, the minimum wage would be R2,000 a month.

The minister of finance in consultation with the minister of labour will also be empowered to set regulations to curb any other abuses. Treasury stressed that existing labour regulation and legislation would remain the primary protection for workers.

Mr Momoniat said the punitive measures could not be so onerous that they acted as a disincentive to employers to participate in the programme.

However, Catholic parliamentary liaison office research co-ordinator Mike Pothier criticised the measure in his submission to the committee, saying permanent disqualification would hurt employees as well as employers and should be removed from the bill.

He believed the financial penalty was “far too lenient and insufficient to dissuade some greedy employers from exploiting the scheme. The penalty should be set at a level that would be an effective deterrent: we suggest an amount equal to 10 times the value of the incentive payments received.”

The National Union of Metalworkers of South Africa is not reassured by the measures to prevent abuse and has called for the withdrawal of the bill.

It said in its submission that it would be very difficult to enforce the prohibition of unfair dismissals. “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.”

Mr Momoniat stressed that the incentive was not a “silver bullet” that would solve the high level of youth unemployment in South Africa — according to estimates, 2.4-million of all those under the age of 30 are unemployed. The plan was one of several policies being pursued by government and was an experiment.

The Treasury has estimated the potential cost of the incentive in terms of future tax revenue foregone as between R1bn and R2.3bn over its two-year lifespan.

He emphasised that there had been “exhaustive” consultations over the incentive and that the design had been changed significantly to take account of the concerns raised.

Instead of the wage subsidy initially proposed, the Treasury had decided instead on an incentive. The age criteria were also changed from the initial 18-29 years for new workers and 18-24 for existing workers to 19-29 years to ensure that young people finished school.

A large number of existing workers were excluded to decrease the “deadweight loss”, that is cases where the incentive is claimed for jobs that would have been created anyway.

The concern that the wage subsidy would result in a lowering of wages was addressed. Mr Momoniat said by basing the incentive on minimum-wage determinations and increasing the maximum eligible income from R5,000 to R6,000. New displacement penalties and criteria were introduced, seasonal and part-time workers were included and the incentive was extended to include special economic zones and designated industries.

In his criticism of the incentive, Mr Pothier argued that it would generally exert downward pressure on wages. Treasury’s proposal was “too timid, too cautious and should be made more expansive”, he said.