Task before technical committee on new minimum wage

Task before technical committee on new minimum wage
January 15 13:55 2019

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By Uche Uwaleke

As a demonstration of his commitment to an upward review of the national minimum wage, President Muhammadu Buhari recently inaugurated a Technical Advisory Committee on the implementation of a new minimum wage.

The Committee has four terms of reference to guide it in coming up with sustainable funding solutions to the seemingly intractable challenge of implementing a national minimum wage across the country.

With respect to the first term of reference, the Technical Committee is expected to ‘develop and advise government on how to successfully bring about a smooth implementation of impending wage increase’. In going about this, the starting point should be to undertake a thorough review of an earlier report submitted by the Tripartite Committee and possibly take further inputs from organized Labour, the Private Sector and the Forum of Finance Commissioners.

The Committee’s second term of reference requires it to “to identify new revenue sources as well as areas of existing expenditure from where some savings could be made in order to fund the wage increases without adversely impacting the nation’s development goals as set out in the Economic Recovery and Growth Plan”.

Identifying new revenue sources should include proposals for ramping up tax revenue and ensuring that the Federal Inland Revenue Service (FIRS) target of N8.3 trillion in 2019 is met and where possible surpassed. It should also include proposal for the sale of government’s unproductive assets that continue to drill holes in the nation’s treasury such as some aircrafts in the Presidential fleet.

Part of the Committee’s recommendation should be the extension of the ongoing assets recovery dragnet beyond the period of the immediate past administration.

The 2019 budget has made provision for various recoveries of about N203 billion. This figure will definitely be higher if the period is extended to include the recovery of government funds and other assets stolen by public officials since the return to democratic rule in 1999.

The Committee is not expected to recommend borrowing as a possible source of funding the new minimum wage as doing so will contradict the Fiscal Responsibility Act of 2007 which forbids borrowing to finance consumption.

Besides, this option does not recommend itself in view of the country’s growing debt burden and elevated inflationary pressure. What is more, the President had made it clear, while inaugurating the Technical Committee that funding an increase in the minimum wage, and the attendant wage adjustments, should be done without a resort to additional borrowings.

Regarding the identification of “areas of existing expenditure from where some savings could be made”, which is part of the thrust of its second term of reference, the Committee should recommend the reduction in the running costs of governance with respect to all the arms of government.

Option

This should also entail ensuring that all Ministries, Departments and Agencies implement the Integrated Payroll and Personnel Information System. Further, the Committee is well advised to review previous reports on the restructuring and rationalization of federal government Parastatals, Commissions and Agencies, especially the Steve Oronsaye report, with a view to proffering suggestions on how to eliminate overlaps, duplications, and redundancies.

In search of areas of existing expenditure to prune down, the Committee should resist the temptation to look in the direction of the current oil subsidy regime for which the sum of N305 billion (US$1 billion) has been provided as under-recovery by NNPC on Premium Motor Spirit in 2019.

This is because doing so will increase the pump price of petrol and further lower real wages thereby defeating the overarching purpose of implementing a new minimum wage. This much was recognized by the President when he stated that “in a period of economic challenges where purchasing power is weak, we must reduce some of the burden on Nigerians”.

Negative consequences

Similarly, it is vital that the implementation of a new minimum wage does not result in unintended negative consequences. In this regard, the issue of a possible downward review for workers already earning above the new minimum wage should be handled with great care.

Much as the huge disparity in the salary structure of government workers should be narrowed, it would be unrealistic to expect the pay package of a staff of say FIRS to be the same with his counterpart in the core Ministry of Finance.

It is a no brainer that revenue generating agencies in particular require incentives to be able to engage and retain high quality workforce if productivity targets must be met.

Perhaps State Governments have a greater responsibility to discharge when it comes to ensuring prudent management of scarce resources given that many of them do not meet their financial obligations to workers as and when due.

To this end, the Committee may consider recommending that State Governments be made to undertake significant cuts in their bloated overhead and personnel costs as pre-conditions for any federal government bailout in connection with implementing the new minimum wage. This could be by way of streamlining ministries departments and agencies, reducing the number of political appointees, eliminating payroll fraud and establishing an Efficiency Unit.

They should also be discouraged from borrowing from commercial banks to execute capital projects in order not to incur huge debt-service obligations arising from funding mismatch. The Committee should also recommend a reduction in the security votes allocated to State Governors.

Avoiding job loss

The third term of reference requires the Committee to ‘propose a work plan and modalities for the implementation of the salary increases’ in a way that does not lead to job losses. Here again, the input of the Nigerian Governors Forum, which has a representative in the Committee, is crucial.

It is public knowledge that whereas the federal government has made provision for a higher wage bill in the 2019 budget, not a few State Governors are threatening to sack some of their workers if they must implement the proposed N30,000 minimum wage given the prevailing public sector revenue challenges.

Hence, any work plan or modality that fails to recognize the nature of the country’s fiscal federalism which places the federal government at a dominant position with respect to revenue allocation may not succeed.

Under the current revenue allocation formula, the federal government receives the lion’s share of 52.68 percent leaving the 36 states and 774 local government councils to share 26.72 percent and 20.60 percent respectively.

In this regard, part of the Committee’s recommendation may have to do with tweaking the current revenue allocation formula in favour of sub-national governments.

Finally, the Committee is expected to come up with ‘any other suggestions that will assist in the implementation of this and future wage increases’.

These suggestions, going forward, should include the need to amend the Constitution of the Federal Republic of Nigeria by transferring the issue of minimum wage from the exclusive legislative list to the concurrent list in order to give both the federal and state governments the right to separately negotiate wage increases with their workers and further strengthen fiscal federalism.

It is hoped that the report of the Bismarck Rewane-led Technical Committee on the implementation of a new minimum wage, expected to be submitted to the government in a few weeks time, will receive prompt attention and not be left to gather dust like the ones before it.

Uche Uwaleke of Nasarawa State University Keffi is Nigeria’s first Professor of Capital Market and the President of the Association of Capital Market Academics of Nigeria.