LETTER: Employment tax incentive does subsidise employers

Busisiwe Mavuso claims “it is absurd (even immoral) in the face of our employment crisis” to state that the employment tax incentive (ETI) subsidises employers (“No quick fixes for SA’s economic woes”, August 7).

Mavuso’s assertion is wrong-headed whichever way you look at it. Even the incentive’s strongest supporters in the National Treasury noted before its adoption that it was inevitable that the incentive would subsidise jobs that would be created anyway (sometimes known as “deadweight loss”). Even if the policy had succeeded in creating the jobs promised, it would still be partially subsidising employers.

Unfortunately, the situation is much worse. In a paper published in 2021 in the journal Development And Change I provide the most extensive analysis of the ETI to date and show that it was adopted based on misleading evidence and lobbying; no credible case was made that it would create jobs; and subsequent analysis trying to find evidence of job creation has failed to do so by a credible econometric standard.

It follows, simply as a matter of logic, that if the ETI did not lead to job creation it must have almost entirely subsidised employer profits — to the tune of more than R20bn. Since the purpose of the policy was to assist the most disadvantaged in society, that it is instead funnelling billions to firms as profits and increasing inequality means it should be scrapped.

What is immoral, then, is for Business Unity SA to seek to allow its members to continue siphoning billions that are supposed to help the most desperate and impoverished in society.

Dr Seán M Muller
Johannesburg Institute for Advanced Study

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