Sustaining new minimum wage

AS the tensions over the minimum wage subside, concerns remain about the burden of payment on the federal, state, and local governments, and the organised private sector. While states should explore ways to increase their IGR to meet the new wage bill and fund capex, the three tiers of government should widen the tax net and implement ease-of-doing business policies for the private sector to avoid massive job losses.

President Bola Tinubu signed the new minimum wage bill into law on Monday. The law stipulates a national minimum wage of N70,000 for workers and allows labour unions to renegotiate the wage every three years.

However, the new wage law is at a dire cost to employers. The Senate approved a supplementary budget of N6.2 trillion to the 2024 Appropriation Act for the Federal Government to allow it to pay. The increment is also to support strategic infrastructural interventions. This increased the budget from N28.7 trillion to N35.5 trillion.

However, this implies an increase in the existing budget deficit, adding N3 trillion to the initial N10 trillion deficit. Reliant on the windfall tax on banks’ forex gains, the minimum wage may aggravate the untrammelled borrowing and debt servicing obligations.

Nigeria spent N7.8 trillion to service its debts in 2023, a 121 per cent increase compared to N3.52 trillion in 2022. A report by PwC Nigeria said the country’s debt service could rise from N8.3 trillion in 2024 to N9.3 trillion in 2025 and N11.1 trillion in 2026. This underscores Nigeria’s credit rating outlook and undermines its debt servicing ability.

The Federal Government should urgently cut the cost of governance, tackle insecurity to restore public confidence and invest in capital infrastructure to attract FDIs.

Unfortunately, the government is in a bad place. The twin policies of removing petrol subsidies and floating the naira have provoked adverse economic consequences. Rising inflation and the high cost of living gave the government no choice but to increase the minimum wage by 133 per cent. While workers await more than double their salaries, inflation, currently at 34.19 per cent, remains an unquenchable monster.

Therefore, sustainability remains a major issue. There are growing concerns that states may default. The doubt is backed by a history of states not paying the previous ones faithfully.

According to BudgIT, 15 states have yet to implement the N30,000 minimum wage since it was signed into law by the Muhammadu Buhari administration in 2019. In its 2023 States of States Report, the civic tech NGO noted that the IGR-to-GDP ratio of states was 1.01 per cent. It said 17 states suffered a decline in IGR in 2022. Many states are not financially viable. BudgIT stated that a new minimum regime could push many states into bankruptcy.

During the Goodluck Jonathan administration, the minimum wage was set at N18,000. To pay, the state governors pressured the Federal Government to tamper with the Excess Crude Account.

To avoid this, states must run as viable economic units. They should explore avenues to boost their IGRs, discard white elephants and frivolities, and focus on valuable developmental projects. They should prioritise agriculture. Capital expenditure should be monitored for effective implementation.

The business environment remains unfavourable for the private sector. Manufacturing is bedevilled by several problems, especially energy costs, an impoverished populace, and poor infrastructure. Companies may respond to the minimum wage increase by rightsizing their personnel. The government should incentivise the private sector.