Submission to Parliament on the Employment Tax Incentive

Further to my previous post, on comments submitted to National Treasury and SARS on the renewal of the Employment Tax Incentive, I also submitted comments to the Standing Committee on Finance. The main document is here.

The committee sat to consider this matter yesterday (9th November). Unfortunately I was not able to attend in person and make a presentation. It will be interesting to see what is decided on four dimensions:

  1. Whether the ETI will be extended at all
  2. If so, how long this will be for
  3. Whether conditions will be attached
  4. Whether a decision will be made about the total Rand value of claims (i.e. foregone tax revenue by government) that will be allowed over the period of the extension.

My work at the PBO

I have already written a couple of articles about the Parliamentary Budget Office, in which I worked for two years and one month, touching on what it should be doing (but isn’t, or isn’t doing well enough) and one rather significant failure. I suspect that I will write more in future on related matters.

For the moment, however, I thought it would be useful to lay out my own work while in that office. Despite difficult circumstances I am proud of the quality of the work that was produced and it seemed appropriate to put together a short catalogue here.

The Office has a website but, for reasons not in the public domain, does not consistently publish its outputs or requests received. Fortunately, if work is ever presented to committees of Parliament reports and slides almost automatically enter the public domain – both by law and the Rules of Parliament (committee meetings are open to the public except in exceptional cases) – and are usually published by virtue of the invaluable work of the Parliamentary Monitoring Group. Although at least 50% of my work was never reflected in this fashion, I catalogue here what I can.

In most instances, the work would have benefited from greater specialisation (as the very broad range of topics below attests!), more time and greater access to relevant information – all of which are characteristics of the most successful PBOs. For example, for the report on SOEs we did not get data that would have enabled (in the time available) an analysis of financial ratios across various SOEs. Nevertheless, what was produced mostly holds-up well in comparison to other institutions.

I was the team leader and/or main author of:

 

  • Advice on the Eskom Special Appropriation Bill and Eskom Subordinated Loan Special Appropriation Amendment Bill for the Standing, then Select, Committee on Appropriations  [slides; PMG source#1 and PMG source#2; we did not have time to produce a detailed analysis]

 

  • Report on the Fiscal Sustainability of Social Grants for the Standing Committee on Finance [slides 39-40; PMG source; the full report has never been presented or published but it is referred to in these slides on the 2016 Budget]

 

The report on Treasury’s fiscal forecasts was probably the technically most sophisticated piece of work the Office has done and is as sophisticated as anything I have seen from any PBO internationally. It is heavily informed by the work of Charles Manski on policy uncertainty and, more directly, insights from the literature on forecast accuracy (which I became aware of at Oxford, from being taught by Andrew Patton). I intend to publish at least two academic papers related to this work.

In other cases some substantive contributions are contained within annual presentations by the Office on the Budget or the Medium-Term Budget Policy Statement: [this list will be completed as/when I have time]

  • Advice on public debt and higher education funding after the 2015 MTBPS [slides 13-18 and 30-39; PMG source; the later ‘report’ on the MTBPS excluded the higher education analysis..]

Comment on the proposed renewal of South Africa’s Employment Tax Incentive

When the Employment Tax Incentive was first proposed in draft legislation in 2013, I submitted critical comments – as part of the standard public consultation process. Subsequently, shortly before the legislation was passed by Parliament, I wrote a detailed critique explaining why the policy was a bad idea.

In 2014, I finished a draft, paper-length academic critique of the basis for the policy, but felt that it was necessary to shelve it because by that time I was working for the Parliamentary Budget Office. Indeed, on a number of occasions some MPs suggested that the Office should provide an independent review. Even though that never translated to a formal request, I was glad that I had held-back my paper. However, since I am now back in academia I hope to submit it to a journal soon.

In the interim, the policy is up for renewal because under current legislation it will expire at the end of 2016. These are the (very brief) comments I submitted, in response to the usual public invitation, arguing that the policy should not be renewed.

While the objectives of the policy may be laudable, not least in the current environment of unrest at our universities, I do not think this is the right mechanism to use and suspect the surplus is largely accruing to firms rather than young work-seekers.

COMMENTS ON THE EXTENSION OF THE EMPLOYMENT TAX INCENTIVE AS PART OF THE 2016 DRAFT TAXATION LAWS AMENDMENT BILL (SECOND BATCH)

In 2014 I submitted comments on the Draft Employment Tax Incentive Bill. (That file is attached for reference purposes along with a Mail and Guardian article on the same topic). The two most notable points were that:

  1. The evidential basis for proceeding with the policy was weak
  2. There was good reason to believe that government would commit significant funds to subsidising firms for jobs that would have been created anyway.

The policy was subsequently implemented, despite these concerns not being addressed.

Despite the desire to now extend the Employment Tax Incentive (ETI) that was implemented, neither the National Treasury nor SARS have provided any evidence that the ETI has created new jobs for the target group.

The Employment Tax Incentive Descriptive Report (August, 2016) provides some useful information on uptake rates, but this on its own is of little value in deciding whether to extend the policy or not. The critical admission in that Report is that, “It is not possible to use descriptive data to determine whether these supported jobs are new jobs created, jobs that have been saved from being lost or jobs that would have been created anyway”. In other words: the Report is unable to provide any guidance on whether the policy is actually achieving its objective, or whether it is squandering public revenue on a misguided scheme.

The only systematic analysis in the public domain (Ranchod and Finn, 2016) found that in the first 6 months after the policy being implemented there was no discernible impact on youth employment. That study has many limitations but the Treasury and SARS have not provided anything better. If these institutions do not have the internal capacity to produce a credible impact analysis, it would have been appropriate to consult external experts to assist.

It appears irresponsible to extend the ETI on the basis of such wholly inadequate evidence. In the current fiscal environment these funds could certainly be put to good use elsewhere. Furthermore, the Treasury should consider the medium-term consequences of renewing its own policies on the basis of such weak/non-existent evidence. Besides compromising its own credibility, this may set a precedent for other departments in future.

 

Dr Seán M Muller

Senior Lecturer

Department of Economics and Econometrics

University of Johannesburg

A digression: ‘decolonising mathematics’ in South Africa?

The idea that academic curricula in South Africa need to be ‘decolonised’ is one that has emerged from both the Rhodes Must Fall (RMF) and Fees Must Fall (FMF) movements. Previously I argued that there is some merit to the concerns raised about economics. (And I still intend to write my final blog post on how I think South African economics should be taught). In doing so, however, I also noted that:

Students are driven by a well-founded instinct that something is wrong, but they struggle to decipher what the causes are. In my view this is entirely understandable given that undergraduates cannot be expected to have a uniformly better understanding of the discipline than those teaching them! But muddling of issues is often used by those favouring the status quo to deflect otherwise legitimate criticism.

It would seem, unfortunately, that in recent times students calling for ‘decolonised curricula’ and their ‘radical academic’ supporters appear to not be learning any lessons in this regard. The recent #sciencemustfall Twitter debate is an extreme case that illustrates some useful points.

The issue began with a video of a meeting at the University of Cape Town where a black student called for ‘science to be decolonised’, going to the extent of stating that: “science as a whole is a product of Western modernity and should be scratched off”. Just in case one might want to wilfully misunderstand her in order to provide some kind of defense, she states that: “decolonising the science would mean doing away with it entirely and starting all over again”.

Coincidentally, on the same the day an article was published on The Conversation with the headline “Mathematics can be decolonised”. This was then used by some to suggest that the student in question had a point. I disagree: for the ‘decolonisation of curricula’ movement to have intellectual credibility, it needs to clearly delineate different interpretations of ‘decolonisation’ and make sober assessments of which aspects are (most) relevant to different disciplines.

A closer look at the arguments in the Conversation piece reveal that what the author is referring to is making the content more accessible – not changing or questioning it in any way. She states explicitly that:

it’s not obvious how mathematics can be decolonised at the level of content. This means that those within the discipline must consider other aspects: curriculum processes, such as critical thinking and problem solving; pedagogy – how the subject is taught and, as a number of people have argued, addressing the issue of identity.

This emphasises a critical point: to pretend, as some have done, that proposals to make content more accessible is the same as “starting from scratch” (i.e. critiquing or removing content) is disingenuous and dangerous. Making content more socially or culturally accessible may be a small part of ‘decolonisation’, but many such calls have something far more substantive – or, in this case, extreme – in mind.

There are three further points I want to make:
1. Calling for mathematical or scientific disciplines to reflect ‘African contributions’ without knowing what those contributions are (or indeed if they exist) is fundamentally misguided
2. Excusing absurd claims like those made in the video is patronising to black students and often self-serving (for self-styled ‘radicals’)
3. I feel sorry for the student in the video: she has been let down by the education system, her peers and the ‘radical academics’ who might have corrected her before she publicly humiliated herself.

Why do I make the strong claim that insisting on ‘decolonising mathematics’ and ‘decolonising science’ is misguided and may be racist? The reason is that this argument assumes that if Africans had not made contributions then they could not lay claim to that knowledge as a product of humanity. That in turn implies that the relative quantity of contributions by different nationalities and races to academic disciplines reflects something about intrinsic capacity of those groups. I believe that is essentially racist. My own view, from the history of mathematics I know, is that the differing extent of contributions to mathematics and sciences by different groups is to do with what we could loosely call ‘historical accidents’ in development (in earlier historical periods) as well as subjugation (including colonialism) in later periods. (To the extent that black people were deliberately denied access to education and knowledge they were deprived of opportunities to make contributions to many academic disciplines. There are of course some remarkable stories, such as Ramanujan, of triumphing over related odds but these are the exception that prove the rule.)

In some areas, like the humanities and social sciences, I do believe there is a strong case that content must be changed, critiqued and contextualised. But it is simply misguided to assume that one can call for decolonisation of mathematics in the same way as decolonisation of anthropology. It is also misguided to assume that you understand what is required and possible in a discipline you are not an expert in (or haven’t even studied at an academic level). Doing that leads, eventually, to the kinds of cringeworthy statements in the video. It is also easy to make progressive-sounding noises about such issues, like suggesting that using fractal-like patterns is the same as having a mathematical theory of fractals. But I would argue that is again misguided for the same reason stated above, and furthermore that it seems rather patronising to Africans: ‘you had fractal patterns in designing stuff so that’s kinda like us Westerners developing set theory’.

The second point is that it is patronising to black students to engage in complicated exculpations of ignorant remarks. When I was an undergraduate I had embarrassingly ill-informed views about a number of things. It was briefly humiliating when those blind-spots were exposed, but fortunately they were (usually not in public) and I was able to broaden and deepen my intellectual abilities. Students who constantly have their ignorance, or excessively definitive claims, excused on the basis of ‘being victims of the system’, ‘whiteness’ or any other currently popular exculpation, are in fact being patronised and denied the criticism that leads to intellectual development

Finally, and relatedly, I actually feel very sorry for the student in question. She has been allowed and encouraged to pursue what could be a defensible train of thought to a humiliatingly absurd extreme because of the ignorance and cowardice of her peers – and some academics who claim to support her worldview. Unlike those academics, she will forever be on YouTube and may never quite shake being an object of derision by others who are less sympathetic or understanding.

I should note that I studied history of mathematics at UCT and distinctly recall my lecturer discussing the Middle Eastern, Indian and Chinese origins of various critical concepts. I particularly recall the story of how the Babylonians ‘invented’/’discovered’ zero. Ironically, the lecturer of that course – Ken Hughes – has subsequently (and somewhat deservedly) ended-up on the wrong side of transformation debates at UCT. But credit should be given where it is due.

Unfortunately, some critics will stick to simplistic claims about lack of transformation and assertions of what needs to be done no matter the evidence provided to the contrary. The rest of us, however, need to find a more balanced and nuanced understanding of when and whether the ‘decolonisation’ narrative has relevance. Otherwise we’ll be responsible for the humiliation of future generations of students who deserve a lot better.

Recent developments

I recently resigned from the Parliamentary Budget Office, where I have been working for the last two years, and accepted a post in the economics department at the University of Johannesburg. I’m really looking forward to getting back into academic work full time.

Subsequent to my departure, I had this article published in Business Day on the under-rated importance of the PBO and what it should be doing

Continue reading “Recent developments”

First post

The purpose of this blog is to provide an outlet for some thoughts on economics (as a discipline and profession) and some reflections on academia, based on my experience of both. I take a particular interest in methodological issues in economics, which I investigate in some of my intellectual/academic work.

I’m also interested in the dynamics of academia and higher education institutions. I have previously written a number of newspaper articles focused on issues relating to South African higher education, but there is much also to be said about what happens internationally.

Given my current work at the time of writing this first post, I unfortunately can’t write much on issues relating to public finance, economic policy or politics – particularly in South Africa. I do have a strong interest in such issues and will probably write about them at some point in the future.

P.s. If you’re an editor and want to syndicate anything, please get my permission first. And always note that I write in my personal capacity.