Incoming Marshalls government announces wages and taxes changes for 2024
BY GIFF JOHNSON Marshall Islands Correspondent
MAJURO, Marshall Islands — Minimum wage up, taxes down and launch of a universal basic income program for all Marshallese citizens in the Marshall Islands. These are the “low hanging fruit” that President Hilda C. Heine’s new administration plans to roll out in 2024.
Finance Minister David Paul told the Marshall Islands Chamber of Commerce at the end of March that the government has just received a detailed assessment on the country’s $3 minimum wage, that recommends an increase over time to reach $5.25 per hour to address cost of living challenges in the Marshall Islands.
“Because of inflation since the last minimum wage adjustment, the report recommends increasing it to $5.25 an hour,” Paul said. “We will introduce legislation … to bump up the minimum wage.”
Finance Minister David Paul at the parliament swearing in ceremony in January. Photo by Hilary Hosia This is to be carried out in tandem with cutting income tax and launching the nation’s first universal basic income program based on funding under the Compact of Free Association’s new funding package.
Paul said “consumers need relief” and the goal of the Heine administration, which took office in January, is to put as much money as possible into the hands of people to rev up the domestic economy.
“The current minimum wage is set at $3 per hour and has remained unchanged since 2017,” said a technical note issued in March by the Graduate School USA for the Marshall Islands government. “Increasing the minimum wage to $5.23 per hour would raise living standards in the urban areas above the poverty line, but add to private sector costs and inflation. This technical note estimates that inflation is likely to rise by 7.7 percent and private sector wage costs would increase significantly. It is thus recommended that any increase in minimum wage should be implemented gradually over a period of years, until it attains the target.”
Paul said the government’s aim is to see the first increment of a proposed $2.25 increase to be implemented by Oct. 1, the next fiscal year.
The plan has already seen pushback by small and medium sized businesses which pointed out that they were hit with implementation of workers’ compensation legislation late last year,requiring all businesses to take out insurance. In addition, high costs of products, high retirement and health fund taxes all add to a challenging picture for smaller businesses.
In the next several years, the plan to increase the wage floor would amount to a 75% rise in the minimum wage.
This is one piece of a three-prong plan to energize the economy of the Marshall Islands by “putting money into people’s pockets,” Paul said, adding “we need to dial back government spending and boost consumer spending.”
He said the new Compact is increasing levels of funding to the national government and in response, the government wants to reduce income taxes to give consumers some relief.
The aim is to cut the income tax rates that are presently set at 8% of income up to $10,400 and 12% on income above that amount. The new government wants to lower these taxes to give workers more take-home pay, he said. The plan to reduce income tax for employees is the first step in a longer-range plan to reform the tax structure, including the business tax system now known as the gross revenue tax, he said.
The third step is to roll out a universal basic income program as endorsed by the Nitijela (parliament) in 2023. The discussion has centered around the possibility of providing every Marshall Islands citizen resident in the country an annual payment of between $800 and $1,000, depending on availability of funding from the trust fund. Use of the new trust fund money is to be limited to withdrawals of 4% per year and the total amount available will be based on a three-year rolling average result of the fund investments.
This requires the Marshall Islands trust fund Committee, with representatives of both the U.S. and Marshall Islands governments, to agree to the formula for use of trust fund money to support the universal basic income program. The U.S. has committed to adding $700 million over four years to the Marshall Islands trust for special needs of the country, areas of need which are not spelled out in the revised trust fund agreement.
Regarding tax cuts and a minimum wage increase, Paul said, “No one in [the] Nitijela will oppose this. Who would oppose putting more money into people’s pockets?” mbj
