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Excessive UIF levies amount to job tax

Thursday, September 12th, 2013

The Solidarity Research Institute (SRI) today said that current levels of Unemployment Insurance Fund (UIF) contributions are excessive and discourage employment. According to the SRI, decreasing UIF levies are preferable to expanding the fund’s mandate to cover items unrelated to unemployment insurance. These statements are part of the SRI’s comments on the Unemployment Insurance Amendment Bill.

According to Piet le Roux, senior economics researcher at the SRI, the UIF has a record of excessive surpluses. ‘In the previous financial year the UIF had a surplus of more than R6 billion out of a total income of R12,4 billion. The fund’s total current surplus is approximately R83 billion. Clearly the fund is more than covering its insurance obligations. The SRI conservatively estimates that halving current UIF levies would leave an amount equivalent to that required to fund 130 000 new entry-level jobs, at R4 000 per month, in the hands of the private sector.’

Le Roux said excessive UIF levies serve to depress employment. ‘The UIF sources its funds by skimming off what employers are demonstrably willing to spend on employees. By drawing on this total supply of wages in the economy, the UIF actually lowers employment that would otherwise originate from two sources: employees who would boost employment in general by their higher expenditure or judicious investing and employers who would be able to finance the appointment of more employees with the additional funds available to them.’

Another aspect of the bill that the SRI touches on in its comments is how the bill would greatly expand the range of beneficiaries covered by the UIF to include people in apprenticeships and government employees. Since it is unclear if government and employers of apprentices will be obliged to contribute to the fund, the proposed amendment might create a situation where certain unemployed people would be able to claim benefits without having contributed to the fund. ‘Even more puzzling is the memorandum to the bill which states that the expansion of unemployment benefits to government employees will not affect the budget of the state. After all, there’s no such thing as a free lunch,’ Le Roux added.

Click here to view the SRI’s full comment on the bill.

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