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“How pay for COVID-19: PLEASE NOT THE FNPF” (FT 4 April 2020)

04/04/2020

How pay for COVID-19? Please, not FNPF (FT 4/4/2020)

In my Fiji Times article two weeks ago, I had suggested that Fiji could learn from Australia’s mistakes in its response to the health crisis posed by COVID-1.

Here I suggest that Fiji can learn from some of Australia’s sensible economic response policies which not only convey the benefits where they are most urgently needed but will be paid for fairly by the whole of Australian society, current and future generations, and not just the employees of today, as is currently intended in Fiji.

The Australian Government response also illustrates the great benefit of Government and Opposition Parties working together for the greater good, instead of playing political football with an unprecedented health crisis which has been likened to the world wars of the previous century and the Great Depression of the 1930s.

I compare and contrast the economic responses of the Fiji Government and the Australian Government.

In particular, it is unfortunate that the Fiji Government is asking FNPF to take the brunt of relief work, and through very unfair measures that penalises workers.

The burden of government subsidies and grants will fall eventually on all taxpayers, hence it is imperative that the benefits of the Bainimarama Government’s stimulus package must also be directed to everyone who is suffering, in a fair and equitable way.

There must be no hint that there is some targeting of benefits for possible “vote buying” in future elections by “sparing” select groups, or using the Stimulus Package intended for COVID-19 victims, to subsidise client companies like the FSC not specifically suffering from the COVID-19 crisis.

Government should at all costs avoid too many special measures targeting particular business groups, as they are currently doing. Not only do these distort the market and create unfairness, but they impose an unnecessary and large burden on administrative staff of FRCA and policing authorities (who have enough work already) while creating yet more loopholes for smart businesses and individuals to make a quick buck.

Australia’s measures

The Morrison Government started was burdened with number of ideological economic shackles which the COVID-19 crisis has shattered.

For several yeas now, the Morrison Government has refused progressive proposals from the Opposition parties, because of their mantra of achieving a budget surplus this year through strict control of expenditures and borrowing.

That sacred cow has been thrown out the window by the COVID-19 crisis.

The Morrison Government having initially rejected the ALP’s call for wage support in order to maintain employment, finally came through with a massive $150 billion program to provide support to businesses including those in self-employment.

The Government will provide a “Jobkeeper Payment” of A$1,500 per fortnight per employee for six months for businesses which can prove that their turnover has fallen by 30% or more (for businesses with a turnover of less than a billion) and by 50% or more for larger businesses.

Having opposed the ALP’s very reasonable call for increases to the Newstart Allowance for people who were unemployed and seeking employment, the Morrison Government has gone all out and increased allowances (now called “Jobseeker Allowance”) to a whole range of persons (partner allowance, widow allowance, sickness allowance, wife pension, youth allowance, parenting payment, Austudy, Farm Household Allowance, Special Benefit recipients.

Many of these categories were expanded to include permanent employees laid off because of the COVID-19 crisis, as well as sole traders, casual workers and contract workers.

It was remarkable that in a period when the government was trying to enforce social distancing rules (“keep two meters apart”), there were long lines of closely packed people outside Government’s Centrelink offices (which are charged with administering the support payments).

While the Morrison Government is also allowing individuals to access up to $10,000 of their superannuation, this is usually a tiny fraction of most individuals’ balances and is of course additional to all the taxpayer funded support measures being put in place.

Of course, the entire Morrison Government Stimulus Package is going to be paid for by increased Australian Public Debt which will be paid for by current and future generations.

Fiji’s Stimulus Package

While it seems that the Fiji Government has been given the possibility of borrowing fairly large amounts from the Asian Development Bank and World Bank special funds for COVID-19, it is totally unclear from Government’s Stimulus Package (Fiji Times, March 27) how exactly these funds will be used to help the unemployed and those suddenly deprived of their usual incomes.

Government’s lock-down of Lautoka and its surroundings has affected many low income people who have lost all means of buying their food and other necessities. This includes not just those in the formal private sector but far more importantly also all those in the informal sector who have little protection.

About the only concrete measure appears to be a “one-off relief payment of $150 per person for all street traders or those who had hawkers licenses”. How this is going to be implemented is anyone’s guess.

It is praiseworthy that there are many NGOs who are making community efforts to support the needy who have lost all sources of income.

But there is no consistent national effort from Government to support those badly affected by the COVID-19 crisis.

Of great concern is that not only is Government asking FNPF to allow some members to withdraw from their savings, BUT it is reducing superannuation contributions to employees’ in an absolutely unfair way, AND that the FNPF Board is totally silent on these momentous proposals.

FNPF withdrawals

The small measure is that Government is apparently asking FNPF to provide $1000 for workers from the hospitality sector who have lost their jobs or had their hours cut, and if those workers do not have $1000 in their FNPF accounts, then Government would “top up” whatever they have.

Other workers affected by social distancing in the Lautoka area may also be able to withdraw $500 from their FNPF accounts.

But there appears to be no rhyme or reason why only the hospitality workers should be targeted.

It is good that the FNPF CEO (Jaoji Koroi) has come out and pleaded with FNPF Members to not withdraw their FNPF savings for the COVID-19 crisis but consider other relief options provide by Government (FT 1 April 2020).

But where is the FNPF Board on this matter?

Reduction of Statutory FNPF Contributions

But by the far the greatest concern has to be Government’s proposal to temporarily reduce FNPF contributions for nine months, supposedly to put money into the pockets of employees and employers. Both are undesirable measures.

The reduction of “employee’s FNPF contributions” from 8% to 5% from 1 April 2020 to 31 December 2020 is presented by the Minister as “putting $80 million in the pockets of employees for the next nine months, while still maintaining a steady contribution to their superannuation scheme”.

But effectively, the employees are taking money out of their FNPF future savings to use for current consumption, not a desirable policy at all as many public policy commentators have warned against.

But far more importantly, the Minister claimed that they would be helping employers by reducing their statutory FNPF contributions from 10% to 5% for these nine months, which would “keep $130 million in their accounts”.

Oh yes, Christmas has come early for employers.

Workers must understand that both the “employee contribution” and the “employers’ contribution” are paid out of the same employers’ wages and salary bill, and both bits belong to the workers in their FNPF accounts.  So this alleged reduction of “employers’ contribution” is effectively taking $130 million from workers’ FNPF retirement funds and giving it permanently to employers, baksheesh.

While the Minister claimed in his speech that “This budget lifts financial burdens from the shoulders of those made most vulnerable by the devastation of this virus” the reality is that that the burden is being placed only on the employees themselves.

What was the view of the FNPF Board on this momentous policy change?

Where is the FNPF Board?

Workers must demand to know what was the position of FNPF Board on all the far-reaching changes that are being implemented regarding FNPF contributions, especially the reduction of employers’ contribution which effectively takes $130 millon from employees and gives it permanently to employers.

Did the FNPF Board object to this?

Are there any members of the FNPF Board who are also employers and who will also benefit from the reduction of the employers’ contribution from 10% to 5%?

Yet again, the FNPF Members can ask, is the Board accountable to the FNPF Members or only to the Government Minister who has appointed them?

Are Fiji’s workers even asking where on earth have they board  members come from?

Where is the national movement among workers to demand that they appoint their own representatives to manage the FNPF in their own interest.

More equitable approach

Let us remember again, the COVID-19 crisis is a national crisis affecting all the people of Fiji and the financial burden of any Stimulus Package should be placed on all people, and not just those with FNPF savings.

The Minister’s announcement that there would be no pay cuts for civil servants makes no economic sense at all. Why should this group of employees be so kindly treated when their employment is virtually guaranteed unlike those in the private sector?

Keep in mind that Fiji’s public health system, which has been creaking at the joints, is going to need a massive boost in finances to ensure that it is prepared for any crisis that comes, with sufficient ICU units, beds, testing equipment and kits, medication, and trained personnel, who can be temporarily boosted from the nursing schools and FSM. Government might also need to provide a modest daily living allowance for people who have lost their jobs and livelihoods (how manage this will be a nightmare).

Both will cost a minor fortune.

It is a national tragedy that the Fiji Government has already inflated the Public Debt to unmanageable levels because of hasty, massive infrastructure spending without the appropriate cost:benefit analyses that should have been done more than six years ago (which some of us economists warned about then, to no avail).

Nevertheless, if the loans are given at low enough interest rates, Government can borrow from available sources such as ADB and Word Bank even if it increases Fiji’s Public Debt further.

But most importantly and however unpopular, Government must increase both direct taxes and indirect taxes to make sure that the burdens are shared equitably in society by the current generation and not just passed on to the next generations.

The overall principle should be that those who have more should take more of the burden.

On the direct taxes side, all employees can pay an additional COVID-19 tax, with a higher percentage at the top end of incomes, and all corporations can pay a COVID-19 surcharge in addition to their normal taxes, with a higher tax rate for large corporations.

On the indirect taxes side, Government can consider imposing a COVI-19 Import Duty surcharge on non-essentials, to raise some additional revenues and to discourage unnecessary drain on our already struggling foreign exchange revenues.

All these COVID-19 tax measures can then be dispensed with when normalcy returns without requiring any contortions of government policies and special interest schemes which have been currently put in place.

To work out the details of the above proposals and the many others that will no doubt be suggested, the Bainimarama Government must eat humble pie and draw on the considerable expertise that is available in Fiji from the Opposition Political Parties as well as the private and NGO sectors (and from former Governor of the RBF, Savenaca Narube) who has written an excellent article in today’s Fiji Times (4/4/2020).

In Australia, the Opposition Parties have all promised full apolitical cooperation to get the Morrison Government’s Stimulus Package passed next Wednesday, and it would seem that the Australian population have also finally realized the severity of the COVID-19 crisis and are cooperating.

Fiji is yet to even see the full brunt of the coronavirus crisis, which hopefully never comes.

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