Pay rise is not a silver bullet to improved workers’ welfare

Across the globe, the workers’ fraternity had been persistently pushing for salary increments since the dawn of time.

Tanzania has not been an exception to this as evidenced by the rallying cries of the workers’ fraternity including public servants on a similar issue.

Whenever an opportunity arose, public servants voiced their concerns regarding the salary increments and the need to align their salaries with the rising costs of living.

On 1st May 2022 (international labour day), the Government announced its intent to raise the minimum wage threshold by 23.3 percent and revise upwards the public servants’ salaries to the delight of many workers in the country.

Such declaration was legislated through the publication of the Labour Institutions Wage Order Government Notice No. 687 of 2022 (“New Wage Order”) which became operational on 1st January 2023.

It was thus satisfactory to see the Government’s continuous commitment to better public servants’ salaries as indicated in the budget framework for the forthcoming fiscal year 2023/24 tabled by the Minister of Finance and Planning last month.

As per the framework, the Government intends to collect and expend Sh44.388 trillion which signifies a seven percent increase being an addition of Sh2.09 trillion to the current fiscal year budget.

The increase is attributed to amongst other factors, a 10.7 percent increase in the government’s wage bill from the current Sh9.83 trillion to Sh10.882 trillion poised to cater for promotions, salary increments and new job creation.

However, this brings the question of whether salary increments alone are adequate and comprehensive enough to improve workers’ welfare in the public and private sectors. In my opinion, pay rises should be complemented by other incentives to realize the welfare improvement goal.

For instance, it is apparent that the ongoing Eastern Europe conflict i.e., the Russia – Ukraine war has tremendously spurred inflationary pressures across the globe and Tanzania not being an island is indeed suffering the consequences.

For the better part of last year, we witnessed a rising level of inflation which is now seemingly easing a bit (4.8 percent in February 2023 from 4.9 percent in the preceding month) as per the Bank of Tanzania’s (BOT) monthly economic review of March 2023.

Therefore, any action designed to improve workers’ welfare should not only focus on salary increments but also on all relevant ingredients that are aimed at enhancing their purchasing power.

For instance, the considered salary increments may be complemented by a critical review of the employment taxes i.e., Pay As You Earn (PAYE) as well as employment-related costs to the employers.

Revising the prevailing PAYE rates downwards would mean more disposable income (actual income available for consumption expenditures) to the workers hence adequately arming them with weaponry for improving their welfare.

Alternatively, the Government could adjust the tax bands used for PAYE computation to reflect the inflationary impact.

It is an indisputable fact that such tax bands were construed at a time when the inflationary prospects were indeed different from the current scenario hence indexation on such bands would aid a ton in the quest to bolster workers’ welfare.

Another consideration could be geared toward rethinking employment-related costs which somehow restrict the employers’ capacity to offer better packages to their employees.

For instance, employers pay Skills and Development Levy (SDL) currently at four percent and Workers and Compensation Fund (WCF) currently at zero-point five percent (0.5 percent), to name a few, which all indirectly restrict the ability to offer better packages to their employees.

For the Government to genuinely bolster the workers’ welfare in the forthcoming fiscal year, it is imperative to consider all ingredients influencing such action whereas tax should be given particular attention. Hence, as the government commits to improve the workers’ welfare through salary increments it is high time that such increments be complemented by revisiting the employment tax regime as well as employment-related costs on the employer side.

As the revision of the employment tax regime is likely to cause revenue loss to the Government, one could argue that the indirect taxes to be collected from the heightened spending will remedy the loss from medium to long term.

More corporate taxes are likely to be collected on the back of improved financial performance of the businesses triggered by the extra spending by consumers.

Further, the Government could persist in leveraging tax technological advancement to unlock the untapped potential of the informal sector in the country, plugging revenue leakages and devising strategies geared at broadening the tax base.