Analysts Data Services and Resources (ADSR), a research firm, has identified Benue, Osun and Oyo as states that have the least ability to pay and finance a new minimum wage.
Other states who may find a wage review challenging are Yobe, Kogi, Adamawa, Jigawa, Kebbi Plateau, Kano, Nasarawa and Ekiti while Lagos, Imo and Zamfara ranked highest in computed ability to pay.
In its recent report titled “The Nigerian New Minimum Wage: Implications for State Governments’ Budget Performance”, the Ibadan-based research institute adopted four metrics to arrive at the rankings.
In computing the states’ ability to finance a new minimum wage, ADSR examined the ratio of personnel expenditure to total expenditure, total revenue, internal revenue and states’ total debt stock.
“This analysis shows that states with relatively high ability to pay are those currently having: low personnel expenses to total expenditure ratio; low personnel expenses to revenue ratio, especially, IGR; low debt profile, and relatively high elasticity of personnel costs contribution to future revenue and expenditure,” it stated.
It said a new minimum wage becomes necessary following the renewed pressure on disposable income of workers buoyed by the various reforms of the government.
ADSR economists stated that increasing the wage would have a positive impact on states’ internal revenue through higher personal income tax. And lead to a rise in total revenue.
However, a wage review will raise states’ total expenditure with a chunk of it coming from increased personnel costs, allowances, benefits, and overheads, the report stated.
“Government will also need to invest in some capital projects to align with workers’ new pay and show the public the need to raise taxes needed to fund increased spending,” it said.
While calls for a new minimum wage continue to build up, a report by BudgIT, a civic-tech organisation, last year revealed that no fewer than 15 states are yet to implement the N30, 000 minimum wage signed into law in 2019.
This paints a sobering image of the states’ ability to afford another upward review, especially with the organised labour insisting on a N250,000 new minimum wage.
How to finance a new minimum wage
ADSR highlighted six ways Nigerian states can finance a new minimum wage with raising the tax base and investing in an efficient tax collection system being the first.
It stated that while raising taxes, the government must consider the current economic situation in the country and avoid multiple taxes to improve the nation’s business environment.
While borrowing to pay salaries seems unsustainable, the research firm stated that states with a low indebtedness record could borrow to finance a new minimum wage.
It further highlighted grants and aid from the federal government and development partners as ways to foot the personnel costs states will incur from a new minimum wage but “will need to use such assistance for development purposes to free resources for workers”.
In financing a new minimum wage, ADSR noted that states may need to “reduce ‘ghost’ and redundant staff” and “commercialise relevant State projects and facilities”.
It also added that reducing corruption would enable states to finance a new minimum wage effectively.
“Corruption needs to be significantly minimised with wastes and leakages avoided for States to be able to find resources to finance higher minimum wage sustainably”.
Both the government and the organised labour have been at loggerheads over a sustainable new minimum wage given the current economic realities.
The organised labour, citing the expiration of the five years Minimum Wage Act which saw the country’s lowest wage increase from N18,000 to N30,000 in 2019, demanded a N615,000 new minimum wage.
Negotiations between the two sides (labour and the government) have been ongoing, and the proposed amount has decreased to N250,000 as of June 7, 2024.
The tripartite committee on new national minimum wage recommended N62,000 to the federal government on 10th June 2024, while the National Assembly made known its willingness to approve an increase to N70,000.
Meanwhile, the president is consulting with states and the private sector before submitting a bill to the National Assembly on the new national minimum wage.
In its meeting held on 26th June 2024 at the Nigerian Governors Forum (NGF), state governors promised to remain dedicated to the process and assured that better wages would result from the ongoing negotiations.
However, the organised labour has described state governors’ desire to determine their states’ minimum wage as divisive and capable of deepening poverty in the country.
It said the notion was dictatorial and undermined the essence and model of creating a national minimum wage in Nigeria.
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