1. Learnership incentive development 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 FFormal sector job 72.9 experience and saw opportunity FRetrenched 7.8 FGot tired looking for a job 4.6 FJoined the family business 11.7 FSimilar 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