No value-creating setup can successfully operate without prudently identifying the goals that it plans to achieve, the size of funds required to deliver on those objectives, and the source of those funds. That process shows how important budgeting is in the life of small, big organisations and even countries. However, each phase in this process can be replete with challenges which if not correctly handled, can frustrate the entire initially set out goals. For instance, the Nigerian budgeting and historical budget implementation processes are chockfull with bogus, and phoney projects, unrealistic underlying assumption such as poor implementation records and gross inconsistencies in the fundamental fiscal policies supporting some of the set goals and targets. If it is not the deliberate underestimation of the costs of the proposed projects as an alibi for prospective substandard performance and intended embezzlement of the funds for those projects, it will be the over-invoicing of such projects with the same end in mind. Let me start with the management of the expenditure side of the budget.
Except for the fact that the motivation of most of the economic managers is to defraud taxpayers, over 45% of the projects for which the government is seeking funds to finance, need not be the business of government at all. The private provision of many of the services that are today loaded up on the government would drastically reduce such unneeded fiscal burden. It will equally reduce government’s ongoing craze for borrowing. With a properly functioning capital market (most specifically investment banking), virtually all the infrastructure such as the railways, electricity, aviation infrastructure, roads, seaports, medical diagnostic centres can be ceded to and managed by the private sector. Of course, there is no need to rehash that this exercise will drastically cut down governments wage bills. But for this to work, the government must put in place a comprehensive legal structure to defend private investors from the vagaries of policy and legislative inconsistencies which have been one of our significant undoings since political independence. Secondly, there must also be a commitment to the creation of the right policy environment for the emergence of mega-investment banks that are equal to any of the top three commercial banks in the country in terms of capital adequacy.
Complementary to the private provision of the supposed public goods, which of course may even include the policing of the country is the removal of all consumption subsidies. It is a ridiculous contradiction that in virtually all Nigerian government policy documents there is a reference to our growth and development approach as predicated on market economy principles, yet approximately 60% of our income goes into the subsidisation of consumption. Although the International Monetary Fund (IMF) advised that we slash fuel subsidy the truth is that what we require is the total scrapping of the entire subsidisation scheme. We should learn from the inventiveness of those operating illegal refineries for lessons on how we can have a well regulated but highly fragmented oil refining subsector. That way, we can rapidly grow the size of private sector involvement in that activity as well as cut off this notorious incentive for the economic rape of the economy. The perpetuation of some of these ideological inconsistencies is part of the reason why we have refused to make progress. The incentives for subsidisation will always run contrary to the positively catalytic effects that market-based production and resource allocation will bring. Therefore, altogether yanking off all subsidies will again reduce the pressure on governments for funds for its fiscal programmes.
Notwithstanding that some of the measures already articulated will naturally result in the reduction of the size of government, there should be deliberate action to resize the government for optimum efficiency. For instance, many offices in the public sector still retain the services of stenographers and typists in addition to an array of members of staff that do not have a single job description. They are on the payroll, but all that they do is to gather at work to chat and gossip till it is closing time. Staff audit in the public sector need not narrowly focus on the discovery of ghost workers but should be extended to include the examination of the performances of the members of staff. Period if performance reviews will naturally help in the optimal resizing of the workforce from time to time. Secondly, compensation at the upper echelon of the Nigerian public sector is unreasonably bloated. Apart from that of the legislature that has become a singsong, the same trend appears to cut across, albeit in different degrees. Effective implementation of the outcome of a professionally conducted assessment of the compensation structure in the public service viz-a-viz what comparatively obtains in other countries of the world may help resize the recurrent expenditure of the government. Finally, there is great urgency in the collapse of the many duplicate offices across ministries and departments and agencies which has equally diminished the importance of many of these parallels.
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The application of the suggestions made above in the years to come will result in no small measure to the reduction of the size of the government’s fiscal expenditures. On the financing side, tax income stands out as the most sustainable complementing other short and medium-term sources such as the recovery of the looted funds that may be significant at present albeit not sustainable in the long term. When we consider taxes, three possible initiatives may positively enhance collectable amounts: (a) considerably reducing the size of income tax payable by individuals and companies (in addition to other tax incentives) and consequently identifying and increasing the number of taxable items and activities. Much of the evasion is attributable to the absence of this. In addition to these should be the toughening of the penalty for tax evasion. Naturally, the easier it is to pay a tax, the more willing economic agents will be in fulfilling that obligation. (b) Simplify the tax system and make it much easier to understand and then drive administration through robust digital payment and banking channels. The digital payment approach should ideally complement other traditional collection approaches. And (c) the licensing of more experienced and capable private tax collectors with the right set of incentives to continuously invest in improved auditing processes and tools for harvesting more tax payment opportunities and by so doing increasing collectable revenue.
Good citizen tax education strengthens the understanding of the simplified tax system. It will also help in appreciating available incentives as well as consequences of default and tax evasion. However, tax education alone would not increase tax participation if the government does not do much to restore the trusts of the citizens of this country to utilise the tax receipts in enhancing their welfare judiciously. A good chunk those who evade taxes deliberately do so because they believe that those taxes are merely contributions of money to be consumed and misappropriated by those in authority.
Adequate attention should also be given to other revenue sources namely the continued recovery of looted and misappropriated funds, the transformation of and legalisation of some underground economy activities into acceptable taxable operations, the privatisation and possible commercialisation of some abandoned projects and wasting assets. Since much of the wealth owned by many of our citizens today – whether in the country or hidden overseas – are products of corruption, there appears to be a reasonable mineable deposit of the country’s resources for fiscal recoveries. The sincerity of purpose and strength of political will on the side of those in authority would be helpful in this regard. At present, the distrust of the citizens over the utilisation of recovered funds remain high, and except there is an elevated level of openness in this respect, this revenue source may not be meaningfully leveraged. Furthermore, in ways similar to the rising global trend of acceptance of cannabis, some activities with substantial commercial advantages and tax revenue prospects that are not particularly dangerous and which the government can manage through appropriate legal structures can be legitimised to broaden the country’s tax base. The legalisation of prostitution and the cultivation and trading in Indian hemp are good examples. This step can go alongside the conscious formalisation of some key activities that have continued to operate informally. The managers of the economy should also consider the conversion of the many wasting and idly sprawling public sector owned assets that dot our environments into commercial advantages. For example, many government organisations operate out of office spaces that are more than 20 times what they need. There is absolutely no economic reason why such extra areas should not attract alternative commercial use which should earn money for the government.
In all of these, one thing that will always be a win-win for all is constitutionally forcing the government in power to stick to fiscal balance and consequently eliminate budgetary deficits. As good as credits may be for business, there is nothing that gives a man greater peace than living within his economic means. In effect, therefore successfully reducing the expenditure exposure of government as suggested in this essay, then the outstanding expenditure must fit into the income available to the economy. If on the other hand, we have more revenue than the planned spending for the period, then additional capital creating programs can be launched. Borrowing should be the last option for the government. With an elevated sense of private provisioning of the hitherto government-provided public goods, more of the indebtedness contracting should be the business of the private sector. That noted, it is even obvious to the blind that the country is fast falling into the ditch of debts. Debt exposure makes most sense when they are carried out by businessmen and investors who know how to turn them around and be able to not only effectively service the debts will generate enough income to repay it entirely. Government lacks this capacity. Worse still, not only does that Nigeria government not have the ability for these but equally requires the discipline to manage borrowed debts honourably.
Frontpage February 20, 2020