Youth employment subsidy from 2012

23 February 2011

South Africa’s National Treasury hopes to implement a R5-billion youth employment subsidy, which compensates employers for taking on young employees, from 1 April 2012, says Finance Minister Pravin Gordhan.

In a media briefing before his Budget speech in Cape Town on Wednesday, Gordhan said the proposal would be taken to the National Economic Development and Labour Council (Nedlac) on Friday.

Details of the youth employment subsidy are set out in a discussion paper for further consideration by Parliament and Nedlac.

The subsidy compensates employers for taking on young employees, and can act to offset the costs of training or risk incurred by employers, especially those running small enterprises.

The National Treasury believes the subsidy will also encourage young people to search more actively for jobs.

How it will work

The idea is that the subsidy will run through the Pay As You Earn (PAYE) tax system operated by the South African Revenue Service (Sars).

To qualify, workers will have to be aged between 18 and 29 and their wages will have to fall below the personal income tax threshold, which for the coming tax year (2011) is set at R59 750.

The subsidy is expected to cover 423000 young workers and, given that some of these workers are likely to be hired any way, the number of new jobs to be created is estimated at 178 000, at a cost of R28 000 per job.

The plan is that, as Sars already uses its PAYE system to reconcile the records on employees and employers twice a year, the system will allow for Sars to corroborate information on employers and employees claiming the subsidy.

Unemployment ‘a serious problem’

Gordhan said about R150-billion had been set aside over the next three years to help create more jobs.

Gordhan said unemployment was a serious problem in South Africa, with 41 percent or only two out of five people of working age in South Africa having a job.

In emerging nations, the rate is far higher – more than three out of five people (65 percent) of working age in Brazil have a job, while the figure stands at 71 percent in China and 55 percent in India.

To reach the global average labour participation rate of 56 percent, South Africa would need to employ 18-million people – five-million more than it employs today.

Most pressing is the unemployment among South Africans below 25 years of age, of whom about 50 percent are unemployed.

The global financial crisis affected jobs in South Africa particularly badly, according to the Organisation of Economic Co-operation and Development (OECD), with employment contracting by 7.5 percent in the recession, compared to a decline of 0.6 percent in Korea, 5.4 percent in the US, 2 percent in Chile, and 13.6 percent in Ireland.

Source: BuaNews