The Employment Tax Incentive (ETI), which costs the state billions of rand each year, has not had a significant effect on youth unemployment, finance minister Enoch Godongwana has acknowledged. Godongwana said in a written reply to a question in parliament by EFF MP Omphile Maotwe that while micro-level gains from the ETI had been observed, “these have not translated into large macro-level reductions in youth unemployment. This is perceived to be largely due to weak economic growth, structural labour-market constraints and methodological limits in isolating causal impacts.” Maotwe wanted to know whether any audits and/or empirical studies had been undertaken to demonstrate that the ETI led to increased youth employment and, if not, why the government was continuing with the scheme.
According to an annexure to the 2025 Budget Review, the incentive cost the government R7bn in 2020/21, R6bn in 2021/22 and R4.8bn in 2022/23. The ETI is a form of wage subsidy to encourage employers to hire youth aged 19-29 years in the context where unemployment for those aged 15-24 is in the region of 60%. The incentive lowers the cost of labour for employers by lowering their monthly PAYE liability without lowering wages.
Trade union federation Cosatu also has concerns about the ETI. Its parliamentary co-ordinator, Matthew Parks, has called for a review by the government of the various incentives and subsidies it invests in the economy and job creation to assess which have had a positive effect and should be expanded and which have not, with the idea being to shift resources to what has worked. “This review is a priority for Cosatu this year at Nedlac and in our budget proposals to the Treasury, the government and parliament,” Parks said.
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”With 12-million unemployed and the economy not creating enough new jobs each year to absorb new entrants, this review is becoming even more urgent. “We are worried that despite billions being spent on it [the ETI], evidence of it having helped create jobs can’t be found.” The incentive was introduced in 2014 for a two-year period and was subsequently extended to February 2029. The 2025 Rates and Monetary Amounts and Amendment of Revenue Laws Bill amended the formula to calculate the incentive and the income bands, but the value of the incentive was retained at a maximum of R1,500 a month in the first 12 months and R750 per month in the second year of eligibility.
Replying to Maotwe, Godongwana noted that multiple independent empirical studies had examined the effects of the ETI since its inception. “Findings from these studies are mixed. Some impact assessments report modest positive effects on youth hiring and retention and note that many young workers remain employed after the two-year eligibility window period.
Conversely, other studies find no statistically significant impact,” the minister said. “The current sunset date of end-February 2029 is a result of two reviews conducted through Nedlac in 2016 and 2018. These were presented to parliamentary committees, which endorsed the recommendations of Nedlac partners that the incentive be extended from 2019 to 2029.”
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