Increment in minimum wage should be followed by decrease in taxes

Increment in minimum wage should be followed by decrease in taxes

 

By Alexander Nkosi

When analysing policies and making important decisions, it is always good to look at the bigger picture, do not formulate policies and make decisions in isolation because when you try to bring them together, even when the intention behind them is good, they end up not fitting well together.

Maids, shop keepers and other general workers are very important to us. Maids literally do half the work in raising our children. Their wellbeing is very important to us. A near 100% upward adjustment in their minimum wage is recognition by government that the cost of living has significantly gone up. It has gone up not just for maids but for everyone. For maids to be effective in their work and put in the best, they need more money. This reasoning should be applied to everyone. It applies to the economy as well. Over taxed SMEs and workers have to be given breathing space for them to effectively contribute to economic growth. In a well functioning economy with a low tax burden on workers and SMEs, an upward minimum wage adjustment is absorbed with very minimal negative effects.

I would say this is a ‘good’ bad decision. This huge adjustment in minimum wages simply shows maids, shop keepers and general workers were underpaid. The question is why? Let’s analyse the situation even before the new minimum wage is effected. Mandatory NAPSA , PAYE is high, there is the new health insurance tax – leaving a small net income. This does not only affect workers who walk away with low net incomes but it also means their propensity to save is affected. Low savings translate into low investment. With heavy government domestic borrowing, it’s even worse as lending rates remain high. For workers, this low net income falls in the hands of high VAT, road tax, carbon tax, fitness, insurance, toll fees, high fuel prices, high electricity prices, high school fees, high food prices and generally high cost of living. Those that were prudent enough not to depend on salaries find it difficult to run their small enterprises as the cost of production is too high, in the end they have drifted back to depending on their salaries which are even lower. This applies to small scale farmers and other small and medium scale enterprises that constitute the majority of Zambians. Even before the new minimum wage is effected, they have been barely surviving with most of them struggling to break even. The result has been complete closure, loss of jobs, reduction in pay and inconsistent pay.

Now we are asking that farmer who after spending so much on inputs sells a 50Kg bag at K65, which is a loss, to increase pay for farm workers he has been struggling to pay at the current rate? We are asking that farmer who is selling a box of tomatoes at K20, earning not even half of the total investment, to pay workers more. We are asking that shop keeper who has to pay high transportation costs, high water and electricity bills, high order prices and makes K1500 per month to pay each worker K1700 per month. What exactly do we expect to happen?

Every weekend, thousands of women and men walk several kilometres in search of piecework even for as low K20 because they haven’t had food for several days. People have reduced on employing house helpers because the cost of living is high. Graduates literary beg to work as sales agents and earn K800 per month to survive. Now when we adjust the minimum wage without lowering taxes for SMEs and worker or even giving workers a significant pay rise, aren’t we risking throwing more people out of employment? People will resort to getting relatives from the villages instead of hiring maids. Some shop owners will close or fire some workers. Other SMEs that mostly employ general worker will also either close or cut down on the number of workers. Both SMEs and the people who will lose jobs will be the biggest victims. If we inflict more pain on SMEs , how are we going to grow the economy or even expand our tax base?

The lower the level of enterprise development, the higher the likelihood that taxes for the overtaxed will have to go even higher to cover high public expenditure. Superficially, it looks so simple but in a stretched economy, simple decisions tend to have far reaching effects. I urge my colleagues who support this decision not to be emotional and want to sound morally rich by only looking at the need to pay our colleagues well, let’s be critical in our analysis. Even good decisions can be bad when applied in certain contexts. Broad policy analysis and consistence is very important.

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    This is what I call matrix of decision-making. This entails precisely what the writer has said – putting together all possible causes and effects in a matrix format is what we term planning – looking at all angles of possible outcomes of our actions. Do we have economic/development planners in this country? Yes, we have a planning ministry, but do they have capacity to do a comprehensive analysis before a policy decision is arrived at?