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A confrontation looms between the government and organised labour after Finance Minister Pravin Gordhan announced the introduction of a youth wage subsidy despite vociferous opposition from unions.
This year’s Budget introduces a R5-billion Youth Employment Subsidy for workers between the ages of 18 and 29.
Starting in April next year, companies who employ such workers will receive up to 50 percent (new workers) or 20 percent (existing workers) of the employee’s salary back from the taxman, provided the worker earns less than the personal income tax threshold, raised from R57 000 to R59 750 in this Budget.
The system will see new workers who earn less than R24 000 scoring their employer a 50 percent rebate - maximum of R12 000 - before tapering to zero for those earning R60 000 a year. For existing workers, the sliding scale starts at 20 percent - maximum of R6 000 - for workers earning less than R24 000.
Existing workers will qualify for the subsidy for 12 months, while new workers will benefit at the 50 percent scale for the first year and shift to the 20 percent scale in the second year.
Gordhan estimates this programme will cover 423 000 young workers, but given that some of them would have been hired anyway, the number of net jobs to be created is estimated at 178 000.
Gordhan said the fact that 42 percent of young people between the ages of 18 and 29 were unemployed could not be seen as “merely a statistic”.
“Young men and women in cities, informal settlements, towns and villages may not have jobs, but (they) have skills in life … And they have hope, and look to us to give meaning to that hope,” he said.
South African youth are worse off than young people in comparable economies. In other emerging countries, about 40 percent of people below the age of 25 have a job, compared to only 12.5 percent in South Africa.
“In short, getting that first job after leaving school is the biggest hurdle facing young people. But once one has had that first formal job, chances of getting another are improved,” Treasury documents suggested.
The government claims the programme will impact on the youth labour market in three ways: it will compensate employers for taking on young workers whose productivity is unknown; it will offset the costs or risks associated with training young workers - especially for small businesses; and it will encourage job-seeking behaviour because youth will believe they are able to find work.
The DA - which has long lobbied for a wage subsidy - will welcome the initiative, but Cosatu is expected to resist the programme. The union federation has previously warned that a youth wage subsidy would have unintended consequences as unskilled part-time and informal workers are dumped in favour of young workers for whom companies can claim a tax benefit.
The subsidy, which will be administered through the PAYE system, will run for three years before a decision is taken on extending the programme.
To improve poor students’ access to universities, the National Student Financial Aid Scheme will receive an injection of R3.6bn, raising the amount available for student loans and bursaries to R9bn. Further Education and Training colleges will receive R14.3bn over three years, including R5bn for the state bursary scheme for poor students. R300m has been set aside for new universities in Mpumalanga and the Northern Cape.
The National Skills Fund, which supports critical skills development and adult basic education - and is funded by a skills levy - will increase by about 47.1 percent a year to R3.1bn over the medium term.
“It is time to celebrate and embrace the potential of our unemployed young, knowing that they are our future. How we meet this challenge will shape the quality of life that our children and their children will enjoy,” said Gordhan. - Political Bureau