DOES THE SUBSIDY WORK?
Economists find that the Employment Tax Incentive mostly has a positive effect on small companies
Economists commissioned by Treasury to figure out whether the controversial Employment Tax Incentive (ETI) is worth the money came up with “inconclusive” – and contradictory – results. However, they do agree that, at the very least, it has not had the negative displacement effects that had been feared – and did help especially small firms hire young people, however modest the overall effect.
The extent to which it created a generous windfall for large businesses that would have hired people anyway is still unclear, but apparently large.
The Nedlac task team looking into the ETI this week released its final report.
It is largely based on the three econometric studies from different economists, using tax data from the first full year of the ETI, the tax year up to February 2015.
One study found a “systematically positive effect” on job growth at firms claiming the ETI.
A second one found that there was a positive effect at small firms, but that, overall, the “effect is not statistically different from zero”.
A third analysis simply found “no positive impact on employment”, according to summaries contained in the Nedlac report.
The only estimate about how many extra jobs the ETI may have created is a relatively meagre one: 10 093 “full-year equivalents” last year.
The ETI, however, subsidised the wages of 686 402 people last year to the tune of R2.2 billion.
The cost of the ETI has subsequently gone up to R4 billion in the year to February this year.
The one thing most of the evidence agrees on is that the effect of the ETI is larger at smaller companies.
In a summary of discussions, the Nedlac report cites government’s view that “the econometric evidence ... offers no conclusive evidence of positive impacts in large firms”.
This has led Treasury to impose a new cap on how much ETI can be claimed by a single employer.
This R20 million limit comes into effect next year and has incensed organised business.
The majority of ETI claims come from large companies that have up to now been able to claim multiples of the R20 million limit.
This will stop a handful of big companies claiming a disproportionate amount of ETI subsidies. It is estimated that in 2014/15 only eight corporations claimed more than R20 million and together claimed a fifth of the entire year’s subsidy, about R450 million, for 92 000 workers.
Unsurprisingly, the business group in Nedlac advised that the ETI continue as is – and that the government look into making it larger.
The Presidential Business Initiative and related CEO Initiative plan to put 1 million young people into private sector internships over the next three years was premised on government subsidising them with the ETI.
According to the Nedlac report, the business representatives also proposed that the ETI get expanded to cover people who earn up to R7 000, “subject to availability of funds”.
Currently, it only covers those earning less than R6 000 a month.
Business also argued for an additional ETI that would specifically target short-term jobs that lasted less than two months.
The R20 million limit was included in the Taxation Amendment Bill that Finance Minister Pravin Gordhan tabled last week.
Tanya Cohen, a representative of business in the Nedlac task team, told City Press that this did not mean that it was a done deal.
“Our understanding is that the cap, although published, is still very much under consideration,” she said.