Wage subsidies will create more jobs in SA

Finance Minister Pravin Gordhan wants more from us. Not just taxes – he wants more leadership, ideas and involvement, particularly in job creation.

Small business has contributed much to South Africa. Some say the sector could do even more, but that the lack of finance is the problem.

Maybe. In many cases the inexperienced entrepreneur would just land in trouble if finance were handed out willy-nilly. Remember, a business idea has no future if it isn’t a cash-positive business idea from the start.

There are heaps of great business ideas that could create jobs in the small and medium enterprises (SME) sector. But they need two essential ingredients:

Previous experience; and Staff.

How does an SME fund a payroll before the cash flows in? There are plenty of South Africans with previous business experience and good business ideas. But they are reluctant to try, as they cannot risk whatever they have financing a payroll.

Meanwhile, the education budget for 2012/13 will top R213-billion out of a total R1-trillion budget. The social security budget will reach R158-billion, and a major slug of that is spent on the social welfare grants of R280 a month to 11 million children. When they turn 18, most of these children, some 750000 a year, fall out of the social security and education systems and face a grim future.

Surely, if we can spend another R135-billion on defence, police and prisons; R95-billion on houses, community and water; R89-billion on servicing the national debt; and even R2-billion on new presidential jets, we can gamble a few billion on an attempt at wage subsidies for SMEs?

Some say the tax system is too complicated and is killing entrepreneurship and job creation. But I say the small-business corporation and turnover-tax packages are simple and generous enough for the business owner. What is needed is a subsidy for the SME payroll – even if it is restricted to first-time job-seekers under the age of 25.

A wage subsidy for SMEs may even result in increased tax compliance, as the SME would obviously have to be registered for income tax, VAT and staff tax before a wage subsidy could be claimed.

If all else failed, the money would still be well spent, as it would reward those who had looked for a job.

Originally published in the Sunday Times Tax Talk column.

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