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. President’s 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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 tiredlooking for a job 4.6 • Joined the family business 11.7 • Similar business experience 4.4 country Why did you choose this industry?

11. 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

12. Conclusion • In line with the President’s 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