Minimum Wage: Is FG Offering Workers Poisoned Chalice?

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By Onyebuchi Ezigbo

As the Senate ended its debate on the 2019 Appropriation Bill, with the passage of N30,000 new minimum wage for workers, the country heaved a sigh of relief that the action will help to maintain industrial peace in the public sector. The public sector employees under the auspices of the Nigeria Labour Congress (NLC) and the Trade Union Congress ( TUC) had threatened to embark on nationwide strike action if government fails to approve the new minimum wage.

So it was not surprising that the passage attracted appreciation from the NLC, which gave kudos to the red chamber of the National Assembly.

But the federal government came up immediately to say that it might increase value added tax (VAT) by 50 per cent to enable it pay the new pay package. This measure was also said to be part of the deal brokered with the Nigerian Governors Forum (NGF) to get the state governors accept to pay the new wage. The proposal to jerk up VAT before the end of 2019 with a view to properly funding the national minimum wage was made public by both the Minister of Budget and National Planning, Senator Udo Udoma, and the Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, during an interactive session, with the Senate Committee on Finance headed by Senator John Enoh, on Medium Term Expenditure Framework (MTEF) for the 2019 budget.

Udoma and Fowler claimed the federal government was considering an upward review of the five per cent currently charged as VAT by as much as 50 per cent to enable it to fund the new national minimum wage. The minister told the senate that the Technical Advisory Committee on minimum wage, would submit its report to President Muhammadu Buhari last week. “So we will be coming to you. There may be some changes maybe in VAT and other things. But we will be coming to you in order to make sure that we can fund the minimum wage.

“Not just to fund the minimum wage, but as you announced it, you now enter into negotiations with those above the minimum wage and we have to be prepared for that. So it is something we are going to work closely with the Finance Committee on how best this minimum wage will be addressed, both from the federal government and the states, to ensure that the whole government apparatus is not just paying salaries and nothing else.

“It is important that we are able to pay the minimum wage and still have enough resources to do infrastructure. The committee has virtually completed its work,” Udoma said.

Fowler said the proposed VAT would be between 35 per cent and 50 per cent adding that with it, the FIRS’ goal was to achieve an N8 trillion revenue generation target this year. According Fowler, the 50 per cent increment will affect the Company Income Tax and the Petroleum Profit Tax.

“By the end of this year, we should be ready for an increase in the VAT. A lot of Nigerians travel to Ghana and other West African countries and they can see that theirs is much higher. They pay when they go for those trips. We should be ready for an increase on VAT. I can certainly see an increase in VAT of at least 35 per cent to 50 per cent this year based on our enforcement activities”

While passing the new minimum wage bill, which put the salary of the least paid Nigerian worker at N30,000, the senate called for a review of the revenue sharing formula to give the states more financial muscle with which to implement the new minimum wage.

The state governors had also made a case for the review of the current revenue sharing formula which gives federal government 52 per cent, while states and local government get 24 per cent and 20 per cent respectively and four per cent for ecological funds. The governors argued that in addition, the federal government should hands off its responsibilities in some areas like primary healthcare, road construction and agriculture. According to state governments, if federal government hands off such areas, it will free more resources that will enable them meet its responsibilities. Some of the senators who supported the proposal for the review of revenue sharing formula said such an action will provide improved earnings for the states, most of which are currently heavily indebted to their workers. Senate Minority Leader, Senator Biodun Olujimi, emphasised that review of revenue sharing formula was key to the implementation of the minimum wage, pointing out that without it many states won’t be able to pay.

However, on his part, Senator Barnabas Gemade, stated that state governments had enough money to pay, arguing that “with the kind of money deployed to buy votes, it means the states have so much money to pay workers. Senator James Manager said it has become embarrassing that some states had not paid the N18,000 minimum wage approved several years back. The House of Representatives had on January 29 passed N30,000 as minimum wage for workers in both public and private sectors.

There are indications that governors may accept the new minimum wage based on the proposal federal government is making to go increase VAT and to use other avenues to shore up the revenue earnings for states. Following the recommendations of the federal government’s technical committee, “state governors are now set to drop their opposition to the implementation of the N30,000 new minimum wage” said a source at the Nigeria Governors Forum.

The 36 state governors had opposed the proposed new minimum wage figure of N30,000 as was recommended by the tripartite committee, saying that they lacked resources to implement it. Instead, the governors proposed N22,500 as what the states could afford. Apart from the increase in VAT recommended by the technical committee led by Bismarck Rewane, the federal government has suggested other initiatives like the adjustment in the official exchange rate of the dollar to the naira.

Expectedly, Labour movement has welcomed the approval of the new minimum wage by the two legislative chambers.

Speaking in a reaction to the passage of the wage bill, the NLC Deputy President, Mr. Amaechi Asugwuni, said the National Assembly has put a smile on the faces of workers. He urged Buhari to follow the part of honour and immediately sign into law the new pay rise document once he receives it. NLC challenged state governments to brace up to accommodate the new salary increase once it is signed into law by the president. But even as the organised labour was happy with the concurrent passage of the N30,000 new minimum wage bill, it has expressed reservation over an attempt by the Senate to tie its implementation with the review of the revenue sharing formula. Labour is arguing that the minimum wage bill is an independent bill, which should not be subjected to adjustments in sharing formula by the Revenue Mobilisation and Fiscal Commission.

Also reacting to the Tuesday’s passage of the minimum wage bill by the Senate, the Head of Information Unit in NLC, Mr. Benson Ukpah, said the leadership of the labour movement were not expecting anything that will drag the process backwards.

“We do not expect to go back and forth, the process that led to the arrival at the N30,000 new minimum wage remains unimpeachable and cannot be controverted by anybody. We do not envisage any party acting within the precincts of the law to oppose what the National Assembly has approved.”

As good as the progress made in the approval of a new minimum wage may seem, the matter is not yet rested because of the measures which federal government is proposing for its implementation. With the plan to increase VAT by a whopping 50 percent, many analysts foresee a situation whereby the amount of burden it would place on Nigerians will surpass whatever gains the workers would make from the increment in wage. Also considering that the percentage increase in VAT (50 per cent) is more than that of the increase in the new minimum wage.

Another argument is that whereas the new minimum wage will only affect public sector workers and few others in the private sector, going ahead to hike VAT is going to inflict monumental economic hardship on the generality of the masses of the country. Since VAT is a form of taxation that is targeted at consumption, there is no way of ameliorating its impact on the people. Critics of this latest government’s policy measure said it would be likened to giving with one hand and using another hand to take it back. They described the offer to pay the N30,000 new minimum wage to workers based on the new template of VAT as amounting to offering Nigerians a “poisoned chalice”.

There is every likelihood that the increase in VAT will wipe out whatever intended gains the workers are hoping to make from the new minimum wage and even cause more poverty in the land. The measure will no doubt drastically reduce purchasing power of an average Nigerian worker and taking him far backwards in terms of the living standards. This may trigger another round of disenchantment and labour agitation in the country.

Like the leadership of the organised labour had argued during the tripartite committee negotiations on minimum wage, the governments at all levels can afford to pay its workers the new wage if only they will apply prudency in the disbursement of resources accruing them. For instance, Labour has cited the humongous resources being expended to maintain the retinue of political appointees and other hangers-on by some state governors. It also complained of the unnecessarily huge amounts voted annually as security votes by the states. For the organised labour, there is no justifiable excuse for the government not to be able to pay the minimum wage. Other economic analysts are also of the opinion that the workforce in most of the states have become very unwieldy and that the governments only need the political will to do the right thing by pruning the size of the workforce so that the wage bill will come down.

Although, the VAT increase may be just one aspect of federal government’s intervention to resolve the issue of the minimum wage, there may be other policy measures the technical committee would have recommended that would address some of the present concerns. Nigerians may have to wait to see the federal government come up with the whole policy package and its implementation strategy in the days ahead.