Scrap this incentive

Busisiwe Mavuso claims “it is absurd (even immoral) in the face of our employment crisis” to say the employment tax incentive (ETI) subsidises employers (“No quick fixes for SA’s economic woes”, August 7). This is wrong-headed however you look at it. Even the incentive’s strongest National Treasury supporters said it would inevitably subsidise jobs that would be created anyway (“deadweight loss”). Even had the policy succeeded in creating the jobs promised, it would still be partially subsidising employers.

Unfortunately, the situation is much worse. In a paper published in 2021 in the journal Development and Change, I provide the most extensive analysis of the ETI to date and show that it was adopted based on misleading evidence and lobbying; no credible case was made that it would create jobs; and subsequent analysis trying to find evidence of job creation has failed to do so by a credible econometric standard.

It follows, simply as a matter of logic, that if the ETI did not lead to job creation, it must have almost entirely subsidised employer profits — to the tune of more than R20bn. The policy was meant to assist the most disadvantaged in society, but instead funnels billions to firms as profits. increasing inequality. It should be scrapped.

What is immoral, then, is for Business Unity SA to seek to allow its members to continue siphoning billions that are supposed to help the most desperate and impoverished in society.

Dr Seán M Muller

Johannesburg Institute for Advanced Study