/ 23 February 2011

Gordhan’s budget pushes job creation

Gordhan's Budget Pushes Job Creation

Finance Minister Pravin Gordhan was unambiguous about the country’s fiscal plans for the coming year — the focus will be on job creation, particularly for the youth. “The president has clearly stated that job creation is our number one priority. This budget outlines what the government’s capabilities and finances can do to support the delivery of jobs,” he said in his budget speech delivered in Parliament on Wednesday.

Read the 2011 budget speech (PDF)

With his speech, Gordhan followed on where President Jacob Zuma left off in the State of the Nation address two weeks ago, when he said: “We want to have a country where millions more South Africans have decent employment opportunities.”

Zuma announced that the state intended to create five million jobs over the next 10 years, and to that end Treasury announced a R10-billion allocation over the next three years for job creation, small enterprise development and youth employment.

The creation of jobs for youths specifically was a key feature of the budget. “We cannot view the fact that 42% of young people between the ages of 18 and 29 are unemployed as merely a statistic,” said Gordhan, who promised the youth expanded access and financial assistance for further education, and a range of initiatives aimed at expanding job opportunities.

Promoting youth employment
Two new initiatives aimed at youth job creation were outlined in the budget — the creation of a jobs fund to co-finance employment projects, and the proposal of a youth employment subsidy, which was first mooted last year.

The proposed youth employment subsidy would cost R5-billion over three years and would be expected to create 178 000 new jobs. The Treasury said the subsidy, which is mooted to be implemented from April 1 2012, would compensate employers for taking on young employees, offset the costs or risks to employers of training young workers, and encourage more active job-seeking behaviour among disillusioned youths. According to the Treasury, this would lower the relative costs of employing a young and inexperienced person without reducing the worker’s pay.

Existing workers aged 18 to 24 would be eligible for the subsidy if they earn less than R60 000 a year, and the value of the subsidy would be calculated on a sliding scale. A person earning less than R24 000 a year would be subsidised up to 20% but this would taper to zero for someone earning R60 000.

For new workers aged 18 to 29, the subsidy would be 50% for those earning less than R24 000 and would shrink to zero for those earning R60 000. This would apply only to the first year of employment, after which they would be counted as existing workers, and subsidised as such.

These and other details have been set out in a discussion paper and tabled at Parliament. The issue will be discussed at Nedlac on Friday.

The state has also created a R9-billion jobs fund to support youth-oriented job-creation initiatives from both the public and private sector. Implementing organisations, including non-governmental and civil society organisations, will be called on to submit proposals for self-sustaining projects that will employ young workers in government, which will assist with the funding. These projects are expected to employ between 50 000 and 100 000 people over the medium term.

Faster job creation
Treasury analysis has shown that even if labour force participation returns to pre-recession rates, about 400 000 jobs will need to be created each year just to maintain the current unemployment rate of 24%. A much faster rate of job creation would be needed to bring down unemployment. In his speech, Gordhan revealed some of the measures the state will take to promote skills development and accelerate job creation in specific sectors of the economy.

To facilitate skills development, the Treasury has allocated R14-billion for further education and training colleges, R20-billion for the Sector Education and Training Authorities and R5-billion for the National Skills Fund. In addition, a learnership tax incentive, which was designed to expire later this year, will be extended for a further five years, subject to an analysis of its effectiveness. To accommodate additional funding for the National Student Finance Aid Scheme, government departments made spending cuts amounting to R6-billion.

The expanded public works programme, which gets R73-billion over the next three years for community-based projects, environmental and social programmes, and road and infrastructure maintenance, is again expected to boost job creation.

The manufacturing sector will also benefit to the tune of R20-billion through renewed tax incentives to support job creation and provide additional training allowances.

Gordhan said giving every South African the dignity of a job is the best legacy this generation can leave for the next. “With jobs comes dignity. With dignity comes participation. And from participation emerges prosperity for all,” he said.

New tax proposals
This year’s budget contains a number of new proposals that will affect taxpayers directly. These include:

  • Personal income tax relief of R8,1-billion
  • Tax will be payable only on income over R59 750 for those under 65 or R93 150 for those over 65
  • Increase in the tax-free lump sum benefit on retirement from R300 000 to R315 000
  • A third rebate for individuals aged 75 and over
  • Conversion of medical tax deductions to tax credits
  • Transfer duty exemption threshold increases from R500 000 to R600 000
  • General fuel levy for petrol and diesel increases 10c a litre on April 6
  • Road Accident Fund levy increases by 8c to 80c a litre
  • An increase of between 4,5% and 10,3% in taxes on alcohol, that is 6,4 cents for a 340ml can of beer, 13,5 cents per bottle of wine, or R2,86 for a bottle of spirits
  • An increase of between 6% and 10,2% on tobacco products; a packet of 20 cigarettes will now cost 80c more
  • Taxation on gambling winnings over R25 000, including payouts from the National Lottery
  • Increases in air passenger departure tax on flights to international destinations to take effect from October 1 this year
  • Ad valorem excise tax on new vehicles with a purchase price over R900 000 will increase to a maximum of 25% from the current 20%