DOES THE SUB­SIDY WORK?

Economists find that the Em­ploy­ment Tax In­cen­tive mostly has a pos­i­tive ef­fect on small com­pa­nies

CityPress - - Business - DEWALD VAN RENS­BURG dewald.vrens­burg@city­press.co.za

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.

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