2011 Budget Options
This article previews the budget looking at three options for spending the R 9 billion for job creation activities announced in the State of the Nation Address.
President Jacob Zuma left the details of the R 9 billion for job creation activities vague in his State of the Nation Address, simply saying:
We are pleased to announce the establishment of a jobs fund of 9 billion rand over the next three years to finance new job-creation initiatives.
The announcement on the details of this are eagerly anticipated when Minister Pravin Gordhan delivers the 2011/12 Budget Speech. There are three major readings about what the details of the proposal will mean. The major options are:
- Application based fund
- Subsidy to support youth employment
- Support small business
Creating an application based fund
The development of a competitive fund within government to incentivise job creation is the most likely outcome. The National Treasury has long supported competitive funding arrangements with performance measures. The reasons for this support is that it provides greater control on the areas in which public funds are spent, and that a planning has been undertaken as part of the application process.
The amount of R 9 billion is however spread over three years, which translates to about R 2-R2,5 billion available in the current financial year. The amount is small compared to the overall budget, and would not provide the scale needed to have a demonstrable impact on employment.
Resurrecting the youth wage subsidy proposal
In the 2010/11 Budget Speech [PDF Link], Minister Gordhan proposed the introduction of a wage subsidy to address youth unemployment, in the following words:
We propose to support these reforms through a subsidy to employers
that will lower the cost of hiring young people without work experience. Under
consideration is a cash reimbursement to employers for a two-year period, operating
through the SARS payroll tax platform, and subject to minimum labour standards. It
will be available to tax-compliant businesses, non-governmental organisations and
The Budget Review 2010 provided more details on the reform as follows:
- Providing a wage subsidy or hiring voucher to lower cost of labour and compensate employers for the perceived risk of hiring inexperienced workers
- Regulatory reform covering the probation period to reduce cost of determinining a young workers productive potential
- Assessing existing measures, such as learnership allowance, so that they provide incentives to hire younger, inexperienced workers
- Minimum wage reforms to align productivity and wages for young workers, similar to those in Turkey, Chile and Argentina
Several commentators, and the opposition Democratic Alliance have argued that the intention is to reintroduce the proposal on the wage subsidy. It would however be a decision that would make the prospects of reaching a social accord extremely difficult, given the opposition to the proposals from trade unions and several youth organisations.
Support small business
A different reading of how the R 9 billion would be allocated, is that it will be focussed on the small businesses in South Africa. There are potential policy options on the income and expenditure side of the budget.
There is potential space for direct spending on the job creation activities, with the following aligning with the New Growth Path:
- Renewable energy
- Agricultural investments
- Other sectors identified in the New Growth Path
The potential for this proposal especially if combined with tax policy.