Learnership incentive development and policy changes

1
Learnership incentivedevelopment and policy
changes
Kevin Fletcher Director General Tax
Analysis Tax Policy Chief Directorate National
Treasury
2
Presidents commitment

• President State of the Nation (2001)
• The objectives we seek to achieve are moving
  the economy onto a high-growth path, increasing
  its competitiveness and efficiency, raising
  employment levels and reducing poverty and
  persistent inequality
• Government has approved a Human Resource
  Development Strategy that will enable us to
  launch an accelerated skills development
  programme for those areas that are critical to a
  more competitive economy
• investigations into the feasibility of
  reducing the cost of labour without reducing
  workers wages.

3
Budget 2001

• Wage incentive to
• Encourage job creation by reducing the cost of
  hiring new workers and of offering learnerships
• Encourage the formalisation of employment that is
  currently in the informal sector
• Inter-departmental task team reviewed various
  options following these announcements

4
Budget 2002

• 8 February 2002 draft legislation released for
  public comment
• Budget announcement
• R25 000 additional deduction for employers
  entering into a learnership agreement
• R25 000 additional deduction for successful
  completion of learnership (of one NQF level)
• Available for all learnerships
• Public comment received until middle March
• Main substantive comments from COSATU
• Meeting with COSATU on 6 June 2002
  recommendations to Minister to revise legislation

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Substantive issues

• Incentive should be available only to unemployed
  learners
• Incentive amount should be lowered
• Employers should retain learners at the end of
  the learnership
• The budget allocated is too low
• Corporate levy to finance incentive
• Technical drafting of the legislation

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Proposed amendments

• Differential incentive for previously unemployed
  learners
• Link additional deduction to the wages paid to
  learners
• Publicity campaign around the incentive programme
  driven by DoL
• Budget depends on success of programme

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Revised structure

• Learnerships with previously unemployed learners
• Signing agreement additional deduction annual
  remuneration paid to learner, limit of R25 000
• Completion additional deduction annual
  remuneration paid to learner, limit of R25 000
• Learnerships with already employed learners
• Signing agreement additional deduction 70 of
  annual remuneration paid to learner, limit of R17
  500
• Completion additional deduction annual
  remuneration paid to learner, limit of R25 000

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No mandatory retention

• Aim of programme
• Short-term employment creation addressing
  information asymmetries in labour market
  (Technikon principals report that 90 of
  experiential training candidates are employed)
• Provide practical training and work experience
  for unemployed learners raise opportunity for
  finding further sustainable employment or
  self-employment
• Provide skills upgrading and employment security
  for employed learners
• Build long-term skills base raise
  competitiveness of economy
• Signficant additional administration and audit
  costs

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No mandatory retention - cont

• Compulsory retention defers possible termination,
  but not indefinitely
• Tight restrictions on recoupment of incentive
  allowances
• Reduce attractiveness of programme
• Already reduced the value of deductions
• Cost-benefit analysis

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Motivations for starting an SMME - the importance
of skills training and experience (Johannesburg
World Bank Survey)

• Main motivations for starting an SMME
• Percent of firms
• Formal sector job 72.9
• experience and saw
• opportunity
• Retrenched 7.8
• Got tired looking for a job 4.6
• Joined the family business 11.7
• Similar business experience 4.4
• country

Why did you choose this industry?
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Displacement

• Workers rights protected by legislation and
  regulations
• Existing apprenticeship scheme does not contain
  these measures
• Learnership incentive available for existing
  workers
• Information asymmetries limit scope for
  displacement risks of displacing existing
  workers too great
• Ongoing monitoring of programme to identify
  issues that arise in practice

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Conclusion

• In line with the Presidents initial mandate,
  this incentive will improve the short-term
  employment prospects of the current unemployed,
  provide practical experience to thousands of
  learners and build the long-term productive
  capacity of the economy