Budget 2015: Hopes and Delusions, By Ifeanyi Uddin
Actions, it turns out, do speak louder than words.
In the immediate aftermath of the fall in global oil prices, the consensus amongst most commentators was that Nigeria would be a leading casualty. The current edition of The Economist describes this vulnerability as due to almost entirely to the twin facts that crude oil sale “accounts for 95% of Nigeria’s exports and 75% of its government revenue”.
The official rejoinder to the oil price challenge was, however, an outlier. For the most part, official spokespersons argued that falling oil prices (and exports, too, it must be noted) did not matter as much as the “doomsayers” were wont to put about. Instead, the serving administration saw in this potential reversal of earnings, a unique window of opportunity to drive activity in the non-oil sector. Drapes drawn, and looking out through this new aperture, all government could see was non-oil sector growth averaging “about 8 percent in the last few years”.
Quite a few commentators could not but note the uncanny similarities between the current state of affairs, and the argument some 6 years ago, by the then governor of the Central Bank of Nigeria (CBN), Chukwuma Soludo. Responding to worries over the adverse fallouts of the 2008-2009 global financial crisis for the economy, Professor Soludo argued that Nigeria’s antiseptic distance from the global markets was a natural insulation from any downturn.
The symptoms, then and now, are about the same: falling oil prices; the domestic currency under relentless downward pressure; an equity market in free fall; volatile interbank market conditions; widening spreads; etc. Confronting these, what to make of the federal government’s sanguine disposition on the outlook for the domestic economy?
Evidently, we do well to turn down the invitation to believe the government and its “supporters club” on how rude the health of the economy is. A more rewarding procedure would require looking instead to the government’s own designs for the economy.
Unveiling its spending plans for next year, the coordinating minister for the economy (and finance minister), told a joint session of the national assembly last week, of government’s intent to raise revenue through better tax administration (plugging “leakages and incidences of non-remittance of requisite funds to Treasury by some agencies”); a new luxury tax; and a proposed increase in the value added tax rate. It would seem that our VAT rate is one of the lowest anywhere in the world.
It would appear, on the weight of these measures, that we may be looking down the barrel of a loaded gun as far as official finances are concerned. Yet by far the more pertinent worry is the conceptual nature of the problems posed by the planned reforms to the public expenditure management framework. At the furthest remove is how so much remains to be done at very granular levels in an economy where government claims to have driven a “transformation agenda” that has changed the face of domestic practice beyond recognition.
There are important detail issues too. Whereas both provincial and municipal governments would welcome a rise in the VAT rate, it is debatable how easily the central government could push for a change in the proportion of this tax that accrues to the respective tiers. Without this change in the proportions, an increase in the VAT rate is important only at the margins.
Then there is the slight matter of definitions. What is a luxury car, for example? A falling naira guarantees that all imports would soon be luxuries, anyway. Moreover, how are we to ensure that once set at and above a certain value, transactions for the commodity so designated would not simply cluster beneath that threshold?
And why would government expect to raise funds from luxury purchases in an economy headed for the ruts? Only because that government is increasingly divorced from reality, it would seem. Recall that in the last quarter of 1991, the American government passed a luxury tax (on just about the same items that our new budget proposal focuses on) which it hoped would raise about US$9bn annually. Less than two years after, Congress ditched the tax because it failed to raise anything close to its target.
There are further smidgens of delusion in the budget proposals for the 2015 fiscal year. The oil benchmark price (US$65/barrel), and daily oil production levels (2.2782 million barrels) stand out clearly. They obviously overstate expected earnings. This would not have mattered that much if this government had a record of financial discipline ― i.e. an ability to cut its danshiki according to the available fabric.
However, a government that has supervised the erosion of the largest fiscal buffers ever created by this country, and then subsequently failed to build new ones on the back of very high global oil prices now promises new spending restraints. Here is to hoping that a 50% cut “to international travels and training”, Along with the paring of “provisions for the procurement of administrative supplies and equipment”, amongst other such initiatives would have the desired effect.
While welcome, the “partial implementation of the Government’s Whitepaper on the rationalisation of Agencies based on the Oronsaye Report” clinches the conversation around the lameness of this budget. When we had elbowroom to drive a radical review of the public sector, government pussyfooted. By choosing to implement a disruption to public administration in much more straitened conditions, government appears determined to exacerbate domestic vulnerabilities.
Even then, there is no better time than now to begin de-layering the public sector. Removing the multiplicity of agencies whose net contribution to the economy is to drive administrative costs up for private businesses. New taxes may well help support weak government coffers, but they have been known to hold investment back, and choke off growth. In addition, no mention is made of the need to increase domestic economic competitiveness, nor policies indicated that point in this direction.
It is this sense of government’s inverted priorities and its patent inability to sequence properly its priorities that is most worrisome.