THE BILLION Dollar COVID-19 RESCUE PACKAGE – ANALYzING THE MEASURES

INTRODUCTION

To keep my usually long posts ‘short’ I decided to comment on each of Governments COVID -19 measures separately. So today its about the First Measure which relates to the reductions in FNPF deductions from Employers & Employees. This morning I was circulated an opinion piece by Peter Hartcher, Political and International Editor for the Sydney Morning Herald. Who wrote: -

For countries like Fiji, Vanuatu, Samoa, Palau that depend on tourism, they've been smashed by the shutdown of tourism.

"They may have been successful in containing the virus, but their main problem is these other effects – about which they can do nothing."

The Attorney-General of Fiji, Aiyaz Sayed-Khaiyum, likens the effect to a severe tropical hurricane –

"such as Cyclone Winston which struck Fiji in 2016 and wiped out one-third of our gross domestic product in just 36 hours".

The ANZ bank estimates that Fiji will lose about a quarter of all jobs in the country as a result. And that Vanuatu will suffer even worse – the wipe out of about 40 per cent of all jobs. This could be just a beginning in a region with a history of tenuous political stability. When PNG announced a state of emergency last week, it set off some small-scale looting in the capital, Port Moresby.

"There are fears," says Stephen Howes, "that as jobs dry up, people will get desperate."

And while the serene remoteness of the region's island nations is part of their charm and does help protect against infection, it's also a very serious vulnerability when normal global trade shuts down, as it now has. For example, the Solomon Islands imports 70 per cent of its rice from Vietnam. No longer. Vietnam has stopped the trade. And Vanuatu relies on imports for more than 90 per cent of its food supply. These vulnerabilities are in the process of turning into acute crises across the South Pacific. Crises of food, water, medicine in the short term. And crises of unemployment, poverty and unrest in the longer.

The Article concludes that - "The Pacific may be blissfully calm, but it's the calm before the hurricane."

MEASURE NO 1: The FNPF Deduction reduction

According to the AG about 25,000 tourism related jobs have been lost. I have tried unsuccessfully to get a ‘fix’ on just how many jobs in total have been lost as at March 31st and from which Industries, but I can’t find it. But according to ANZ in the article above 25% of our jobs will be lost, so using my base 193,736 FNPF membership with $0 to $5,000 balances that will mean according to ANZ’s projections that 48,434 workers will or have lot their jobs therefore about 145,302 will remain employed up till December.

THE MEASURE

To support all employers in Fiji, the statutory FNPF employer contribution is halved from 10 percent to 5 percent effective from 1 April 2020 to 31 December 2020. This will provide a $130 million relief to employers for the next 9 months.

Employee Contribution is reduced from 8 percent to 5 percent effective from 1 April 2020 to 31 December 2020. This will put around $80 million back in the pockets of Fijian employees for the next 9 months

MMB: Every and any measure that brings relief to our people and businesses who employ them in a time of crisis is good, however if a % of its intended beneficiaries are excluded for one reason or another then the issue of equality and fairness comes into play and the intended benefit for ‘all our people’ that this measure attempts to achieve is lost.

For example, what benefit will this measure have for the 25,000 workers that the AG referred to as having already lost their jobs and the companies that employed them? NONE!

Then there are those companies who will close down and their workers lose their jobs between now and December, their benefit will be limited to how long they stay operational before they close.

So while the intent is good, the down side is that not all workers or businesses will benefit equally, and while the companies cash flows will improve by the reduction of their contribution, the worker loses out on 9 months of deductions into their retirement fund, at a time when we have 246,409 members with balances from $0 to $5,000.

So, what is the actual ‘$$$ benefit’ of this measure to the business and to the worker?

Well, if we take the 2018 hourly rate of pay for 21 of Fiji’s major Industries which is $3.88 per hour and the minimum wage rate of $2.68 the actual ‘savings for a business owner will be $9.60 per week per worker or $1.37 a day. For those engaged on minim wage the employer will save $6.72 per worker per week or $0.96 a day.

For workers on $3.88 per hour they will add $5.76 more per week to their pay packet or $0.82 per day and for the minimum wage worker on $2.68 per hour they will add $3.84 per worker per week or $0.55 per day. See my table below.

This benefit will only go to those businesses still operating from now until December and those workers fortunate enough to keep working, amid the escalating containment measures, social distancing, ‘stay at home’ ‘lock downs, and ‘travel restrictions’

None of the 25,000 to 48,434 workers projected by Hon Khaiyum and ANZ and their dependent families who have already lost their jobs or the companies that employed them will benefit anything.

The Minister refers to projected savings and benefits of $210 million ($80 Million for workers and $130 million for employers) however when I do the sums, I get another result: -

AG’s 25,000 job loss assumption: Using my FNPF base number of 193,736 workers and if we deduct the AG’s projected 25,000 job losses then that means about 168,736 workers will remain employed. [ Approx 103,151 on $3.88 & 90,545 on $2.68] So, for the businesses they will save $63.9 million from reduced FNPF payments and workers will have about $37.6 million added to their income from reduced deductions. In total = $101.5 million. This is 48% of the total $210 million saving government has announced.

ANZ’s 25% job loss projection: If we use the ANZ projection of 25% or 48,434 job losses that will mean ANZ forecasts 145,302 workers remaining employed. And based on this, the following ‘benefits’ from the measure would likely be a saving of about $50.3 million for employers and workers will gain $30.1 million total = $80.2 million

With either scenario there will remain somewhere from 25,000 to 48,434 workers who have lost their jobs and the companies they once worked for who will not benefit from this measure.

SUGGESTED SOLUTION: We can’t undo what has already occurred to this point, but we can make corrections and adjustments to get it right which is that fundamentally every support package must first and foremost be fair to all and consistent with all employees and the business operations in its implementation.

To ensure that fairness and consistency we must pay the FNPF savings based on the employer and employees wage levels prior to closing down for at least the next 4 months to all those who have lost thier jobs and whose companies have closed, while those businesses still operating, and workers still employed can continue to benefit from this measure for the next 9 months.