President Cyril Ramaphosa. Picture: GCIS/ELMOND JIYANE
President Cyril Ramaphosa. Picture: GCIS/ELMOND JIYANE

The starkest criticism of the government’s economic recovery and reconstruction plan published last week has been its government-centric focus and the scant attention paid to stimulating and supporting the private sector.

This is especially true when it comes to jobs, with the government committing to a R100bn employment stimulus over the next three years, which will come mainly in the form of mass public employment programmes. It is a hugely ambitious plan and envisages that 800,000 part-time job opportunities will be created between now and the end of the financial year in March 2021.

With 42% of the working age population now unemployed and structural unemployment set to remain a dominant feature of the economy for many years to come, it is important that this initiative succeed. But as President Cyril Ramaphosa himself acknowledged, it is the private sector that is the engine of growth and investment and, therefore, job creation.

But the recovery plan provides no employment incentive to the private sector. The enhancement of the youth employment incentive tax, which operated between April and July, has now come to an end. The enhanced incentive increased the rebate claimable on each employee and also extended the benefit to cover all employees earning less than R6,500, rather than just employees between the ages of 18 and 29.

The extension did make a difference to some employers. Compared to the amount claimed by the end of August in 2019, R2bn, by the end of August in this financial year, R4bn was claimed. The continued extension of the enhanced incentive was put forward as a proposal in public hearings on the tax measures taken under the Disaster Management Act, but was opposed by the Treasury on the grounds it would tamper with the fiscal framework that is already under huge pressure.

Ramaphosa addressed the criticism of the recovery plan in his reply to parliament on Wednesday. He argued that what will help the private sector more than anything else will be the changes to the business environment brought about by structural economic reforms, particularly of network infrastructure.

Investment incentive

This is definitely true. A more conducive investment environment is the single biggest investment incentive that could be offered. In fact, without it, there will be no investment and the recovery plan proposed by business, which draws from the government plan, made the case clearly and outlined what needs to be done.

It is interesting, though, that business — which does make use of the employment incentive and benefits from the cost saving — didn’t push much for its extension in the National Economic Development and Labour Council (Nedlac) discussions on the recovery plan. This is a pity as many firms are now looking at retrenchment and could have benefited from a general wage subsidy for the lowest paid.

But while business is not focused on protecting jobs, which is disappointing, the government should be. SA has a structural unemployment crisis. Projections are that it will be five years before the SA economy again reaches the size it was in 2019. This will translate into less income for households and prolonged periods in which livelihoods are under threat.

In his reply to parliament on Thursday, Ramaphosa made the point that the emphasis on public employment programmes is necessary because it will be some time before the economy gets going and immediate relief is required. This is easy to agree with, but much more is needed to help the unemployed into jobs.

Many firms furloughed workers without pay during the first few months of the lockdown, which made them ineligible for the incentive. This is a possible explanation why the take-up of the enhanced incentive was not as large as the Treasury anticipated. But now that firms are starting to increase production, a wage subsidy would be a useful tool to offer to achieve what must be the government’s number one political priority: to get more people into jobs.

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