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Minimum wage and revenue sharing formula



IN JUNE 2018, Brooking Institute declared Nigeria the world’s Poverty Capital. The federal government did not take it lying low as it upped the ante of policy initiatives and programmes to reverse the ugly impression which is an indictment on the abundant resources in the country.

To say that a significant segment of the Nigerian society being ravaged by extreme poverty and penury is the public sector employees is merely stating the obvious. This reality might have led the framers of the law to state that minimum wage should be subject to review every five years. In addition, the law stipulates that pension harmonization should be done every five years or whenever a new minimum wage is promulgated. These provisions of the law were designed to ameliorate extreme poverty while government would equally initiate poverty alleviating policies and programmes for other segments of the society.

In his ‘World poverty capital: Nigeria’s weighty burden’, Isaac Anumihe said: “The Institutes report had said that India used to be the World Poverty Capital with a population of 1,324 billion people as against Nigeria’s 200 million. But now the number of Nigerians in extreme poverty increases by six people every minute.

“So, the projection is that Nigeria has already overtaken India as the country with the largest number of extreme poor in early 2018…Last Match, the International Monetary Fund [IMF] had reported that Nigerians were getting poorer, saying there was a need for coherent and comprehensive economic reforms”.

Concurring with the dreary scenario on the parlous living conditions of over 80 percent Nigerians, a development economist, Odilim Enwegbara posited that “for Nigeria to get it right, it must drop one trillion naira into the various micro-economies. In addition to this, the government should pay every unemployed Nigerian N20,000 a month and also ensure that the basic minimum wage is N50,000”. He said that India did the same thing and escaped poverty and advised Nigerian government to to adopt the same measure.

Continuing, he admonished: “If a country is so poor, it means that the purchasing power of that country is weak. That will discourage investment and encourage capital outflow. If domestic investors don’t find demand for their goods and services, they would move to other countries where demands exist”.

Section 16[2][d] of the constitution provides that, “The State shall direct its policies towards ensuring that…reasonable national living wage, old age care, and pensions, sick benefits and welfare of the disabled are provided for all citizens”. It is intriguing that there was a long-drawn imbroglio between the leadership of organized labour namely: NLC and TUC and the dogged and ebullient Minister of Labour and Employment, Senator Dr. Chris Ngige [OON] on behalf of the federal government for an acceptable New National Minimum Wage. At a stage,  Ngige informed the labour about the proposal of the federal government to pay federal workers N30,000 while state workers would be paid N27,000. Eventually, Buhari forwarded the Executive Bill for N30,000 to the National Asembly for deliberation and passing. The two chambers of the legislature while passing the amount stressed the need for a review of the extant revenue sharing formula to enable the sub-national government implement the new minimum wage going by the inability of over 28 state governments to continue with the extant minimum wage due to dwindling revenue receipts which led to accumulated arrears of salaries and pensions and gratuity.

Earlier, the Nigeria Governors’ Forum [NGF] had met and resolved to prevail on the federal government to review the revenue allocation sharing format going by the fact that the lopsided revenue sharing formula was irrationally tilted in favour of the federal government which has far lesser responsibilities in the legislative list than the state governments.

Having forwarded the New National Minimum Wage Bill to the National Assembly, President Buhari introduced a somewhat curious twist by empanelling “Presidential Advisory Committee on New National Minimum Wage” headed by a financial and economic expert, Bismarck Rewane, to advise him on how the federal and state governments will source funds to implement the envisaged wage, including adjustments on all the grade levels on a sustainable basis without resorting to borrowing.

The Terms of Reference include: To develop, and advise government on how to successfully bring about a smooth implementation of impending wage increases; 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 [ERGP]; propose a work plan and modalities for the implementation of the salary increases, and any other suggestions that will assist in the implementation of this and and future wage increases.

Buhari being conscious of the need to increase the salaries of other grade levels other than grade level ‘O1′ had said: “However, we anticipate that after the new minimum wage has been passed into law, we will be going into negotiations for salary review for all the workers who are already earning above the new minimum wage. It is therefore important that we are properly prepared to meet these demands. We must therefore look at ways of implementing these consequential wage adjustments in a manner that does not have adverse effects on our national development plans, as laid out in the Economic Recovery Growth Plan [ERGP]. The ERGP sets appropriate targets for levels of Capital Expenditure, Public Debt, Inflation, Employment, etc. It is absolutely important that the implementation of a new wage does not adversely affect these targets, and thereby erode the envisaged gains for the workers”.

Apparently making a case for substantial adjustment of salaries of workers on grade levels above grade level ’01’ who have ever increasing responsibilities, Tony Iwuoha, in his ‘Living or minimum wage’ noted that “The states are often hamstrung and overwhelmed by huge wage burden. Also, the centre has an unfair cut of the revenue sharing formula and, like the country, ought to be restructured. What we need is not bumper salary that will cause inflation and eventually wipe out the seeming gain. Government should strive to make the country conducive for investors, provide infrastructure, collect more revenues and boost GDP beyond the present status and give the naira a little punch to make it competitive in the foreign exchange market instead of groveling on the floor like an abandoned orphan…What Nigerians need is living wage, not minimum wage. Only that will make their lives more meaningful . They don’t need wages that will ultimately minimize life’s worth. Of what use is bumper salary that’s not paid or that cannot last for a week due to inflationary trend?”

Having received the Rewane report, the social media platform revealed that the President has signed the National New Minimum Wage Bill into law. But the presidency reacted through the senior special assistant to the president on National Assembly Matters, Senator Eta Enang, who said: “The passage of the bill by the senate coincided with the submission of the report on the new national minimum wage by the Technical Advisory Committee Buhari set up to advise the federal government on how to pay a wage increase above the current N18,000. The panel, which was chaired by renowned economist and business man, Mr. Bismarck Rewane, submitted its report to Buhari on March 25.”

Going by the prevailing realities in the economic predicament in the country, state governments are strategically positioned to meet the basic needs of the masses. The revenue sharing formula was designed to be reviewed at  reasonable intervals to enable the sub-national governments live up to their billings, more so the imperative of salary adjustments to enable the public sector employees live meaningful life. It is mind boggling to tolerate the bogus emoluments of legislators in the National Assembly while public servants are expected to ‘endure’ life instead of enjoying life. This is why the Senate had supported state governors on the issue of review of statutory revenue sharing formula saying that “the current revenue sharing formula should be reviewed to make more funds available to the other tiers of government to enable them cope with paying the N30,000”.

However, going by the advice by the Rewane committee to the federal government to embark on aggressive sourcing of revenue to implement the new wage, a cross section of concerned Nigerians were effusive in condemnation of the proposed increase in the percentage in VAT going by the fact that it closely touches the lowest rung of the society. A national daily editorial argued against increase of VAT thus: “Given that the economy is just making it out of recession and government is about implementing the new minimum wage, the move would have been counter-productive”.

Another editorial contended that “…any increase in VAT will definitely affect the prices of goods and services and even lead to inflation. The average consumer will be spending more of his or her income due to rising consumer prices, if the proposed VAT hike is approved, it will adversely affect the economy. Many manufacturing companies are finding it difficult to remain afloat as a result of multiple taxes. The manufacturers are struggling to explore measures of transferring costs to consumers. Besides the inflationary spike and increase in consumer prices, the planned VAT hike will likely reduce profit margins for businesses.

“We suggest that government should drop the idea of raising the VAT and look for other means to generate more revenues for the new minimum wage and other expenditure plans. One of such avenues is a review of the present Revenue Sharing Formla [RSF] in such a manner that will give th state governments enough financial power to implement the new minimum wage. If the government goes ahead with the proposed VAT increase, in order to pay the new minimum wage, it will make nonsense of the new wage”.

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