BUDGET 2015: IF I WERE YOU, I WOULD REALLY ENJOY THIS CHRISTMAS !
In this column over the last few weeks I had counseled my readers that they should brace up for a rough ride ahead of us. Now the nature of the rough ride is becoming clearer by the day. When I wrote last on this, oil was selling about 78 dollars to the barrel. But as I write this it is selling about 58 dollars to the barrel. The Government had reduced its benchmark for the 2015 budget from 78 dollars to 73 dollars and then to 65 dollars and was forced to stop chasing the receding tide at that point.
During the week, the Minister of Finance and coordinating Minister of the Economy (CME), presented the 2015 budget estimates to the National Assembly and subsequently to the Nigerian Public. Despite the spirited effort of the Minister to look cheerful and project a positive outlook, the whole excercise was sobering . She must be wondering why all this is happening under her watch. After promising the Nation that she was working to take the capital budget back to about 40% of the total Budget, and after we thought that the 28% budgeted for 2014, was the lowest we could ever descend, I could imagine the pain in her heart( because I did not make the promise but I felt so much pain) as she looked us on the face and told us that 2015 capital budget was only going to be 14% while recurrent expenditure will gulp 86% of the budget. This is a record. In my years of watching and participating in the economy, I had never seen the capital budget come this low, not even through all the cycles of oil burst we have experienced as a Nation: late 70s, mid 80s, late 90s, and in 2008-2009. How did we get here?
The CME has advised Nigerians to begin to see Nigeria as a non oil producing Nation. Good advice but rather belated in my view. How I wish,some body had given us this advice at least ten years ago and we accepted it, when perhaps we would have had ample time to prepare for this time. For several years, many oil producing Nations began to prepare for such a time as this and so will not be in panic as we are today or take measures as we are now taking today that actually may distort our development trajectory. Norway for example, saves or invests all of its oil earnings and only appropriates the interest or dividend for National expenditure. But Nigerian Governors and Opposition Politicians will not allow even the Excess crude account to stay. From a capital expenditure Budget of over 1trillion Naira in 2014, we are now forced to take a precipitate 48% decline over 2014 to 627 million Naira for 2015. Iam terribly worried that the modest success we have achieved in Infrastructure development in the last four years - Roads, Rail, Power and water supply, may some how be slowed down or stagnated. With all that is being done, many Nigerians still cry about infrastructural deficit, I then wonder how they will feel with this kind of paltry capital budget. I will have been more comfortable, if the situation was reversed, that is that our recurrent expenditure declined from 72% to say 65% while the capital budget moved to 35%. I can appreciate the challenges, Government would face if this option were to be accepted, especially in an election year, because, it would have involved either reducing the number of Public servants( including the civil servants) or reducing their benefits. I know that the Labour unions would join Boko Haram to make the Country further ungovernable, that is if they would not even prevent the elections from holding.
And so, since it is not not politically expedient to touch the largesse of our public oficials( political and civil), we have to take it out on others. First is on our capital projects. Many of our contractors will have to demobilize and send their workers into the unemployment market. Unpaid certificates and invoices will pile up and loan defaults will increase. With this situation, do I need to reiterate my advice that we should as much as possible defer awarding new contracts, focus on completing existing projects and paying down debts. That will be more helpful to the economy in my view than awarding more contracts that will not be adequately funded. My hope therefore is to hear less of new contract awards after the weekly Federal Executive Council ( FEC) meetings. I will be pleased rather to hear of the percentage reduction in the outstanding debt to Contractors or indeed our overal debt burden. This will give at least a psychological lift to many, because, even the CME admitted that our debt obligation is increasing even under her watch. I trust that she knows what to do to halt this growing disturbing trend and I will encourage her to take bold actions. It will be double tragedy to have declining National income levels and then growing debt levels which may be difficult for us to pay as at when due. We had been there before!
The next level of burden bearers will be the rich or wealthy. I have no problem with Private Jet owners paying more tax, or those who import new cars paying additional levies or even those who fly business class paying new taxes. Nigeria has become a major consumer of Champagnes and wines from all over the World. Additional tax will touch many Nigerians. So from the 2nd Quarter or so, these items will cost more. Well I believe that this is enough warning for those of us who drink wines or champagne. This Christmas and new year festivities may be our last opportunity to drink cheap wines. The hint on increasing VAT on other tradeable items will have more far reaching implication on the economy. My caution will be that before we increase rates on taxes, we should do more on enforcing compliance. I believe that the current campaign by the Federal Inland Revenue Service( FIRS) to enforce compliance is in the right direction. Yes, some mistakes will be made and some missteps will happen, but we must push on to get more people voluntarily comply with our tax legislation. I believe that up to 50% of Nigerians and Businesses in Nigeria either do not pay taxes at all or they may not pay adequate taxes. My advice is that we should not use the same tactics in dealing with both. Those who pay taxes at all, and who may have underpaid or delayed in payment should not have their businesses shut down arbitrarily because of the impact on other aspects of the economy but those who dodge or evade tax should receive maximum penalty.
How ever we look at the 2015 Budget proposals, the road ahead will be tough but I believe that if we are sincere and consistent with the implementation of the measures outlined by government , we may scale through. For example, it is nearly three years since Oronsanye's report on rationalizing MDAs, and not much has really happened after the white paper. The CME was still talking of planning to send the bills to the National Assembly. I believe we have heard this before. We talk of reducing foreign travels and foreign training, we also have heard of that in the past. This penchant of Government to announce things they plan to do even when they have not given sufficient thought to it, leaves sour taste in the mouth and creates credibility gaps. All these measures reeled out should be implemented faithfully and with despatch. It will be insulting our intelligence if these same measures are rehearsed again next year, when things may have gotten worse. I know that Government has a notoriety for poor policy implementation but we must avoid that this time. The Nation is in dire stress, and prompt actions must be taken expeditiously.
Nigerians, rich and poor have been requested to make sacrifices to help the Country overcome its presenting economic challenges, on top of the persisting security challenges. Knowing Nigerians, they would be willing to do so, but. The ' but' is that the Government must ensure it walks the talk. All the excesses of our Public Servants ( in the three arms of Govt- Legislature, Judiciary and Executive, and three tiers of governance- Local, State and Federal) must be drastically cut down immediately to sign post a seriousness. For example, we should outlaw convoys that accompany important and not so important government officials when they are going to the airport or just attending a social event. There is so much waste in Government which can be saved to help reduce deficit and the pressure to borrow. I hope this battle will not be left to the CME alone . I request the President to lead this battle to involve all aspects of National governance, so that we can begin to see results by the end of Q1,2015, the electioneering campaigns not withstanding.
For the rest of us, as we brace up to pay more taxes and face the imminent inflation( notwithstanding the official story of declining inflation), I recommend that we take out time to really enjoy this Christmas when many items are still relatively more affordable. If this oil wahala continues and government is forced to take more adjustment and austerity measures, we may be forced to go without a lot more in the months ahead. So if I were you, I would rather get the best that is possible this Christmas and March into 2015 with faith and hope. Merry Christmas, Nigerians. Please let it be merry for Jesus sake!
During the week, the Minister of Finance and coordinating Minister of the Economy (CME), presented the 2015 budget estimates to the National Assembly and subsequently to the Nigerian Public. Despite the spirited effort of the Minister to look cheerful and project a positive outlook, the whole excercise was sobering . She must be wondering why all this is happening under her watch. After promising the Nation that she was working to take the capital budget back to about 40% of the total Budget, and after we thought that the 28% budgeted for 2014, was the lowest we could ever descend, I could imagine the pain in her heart( because I did not make the promise but I felt so much pain) as she looked us on the face and told us that 2015 capital budget was only going to be 14% while recurrent expenditure will gulp 86% of the budget. This is a record. In my years of watching and participating in the economy, I had never seen the capital budget come this low, not even through all the cycles of oil burst we have experienced as a Nation: late 70s, mid 80s, late 90s, and in 2008-2009. How did we get here?
The CME has advised Nigerians to begin to see Nigeria as a non oil producing Nation. Good advice but rather belated in my view. How I wish,some body had given us this advice at least ten years ago and we accepted it, when perhaps we would have had ample time to prepare for this time. For several years, many oil producing Nations began to prepare for such a time as this and so will not be in panic as we are today or take measures as we are now taking today that actually may distort our development trajectory. Norway for example, saves or invests all of its oil earnings and only appropriates the interest or dividend for National expenditure. But Nigerian Governors and Opposition Politicians will not allow even the Excess crude account to stay. From a capital expenditure Budget of over 1trillion Naira in 2014, we are now forced to take a precipitate 48% decline over 2014 to 627 million Naira for 2015. Iam terribly worried that the modest success we have achieved in Infrastructure development in the last four years - Roads, Rail, Power and water supply, may some how be slowed down or stagnated. With all that is being done, many Nigerians still cry about infrastructural deficit, I then wonder how they will feel with this kind of paltry capital budget. I will have been more comfortable, if the situation was reversed, that is that our recurrent expenditure declined from 72% to say 65% while the capital budget moved to 35%. I can appreciate the challenges, Government would face if this option were to be accepted, especially in an election year, because, it would have involved either reducing the number of Public servants( including the civil servants) or reducing their benefits. I know that the Labour unions would join Boko Haram to make the Country further ungovernable, that is if they would not even prevent the elections from holding.
And so, since it is not not politically expedient to touch the largesse of our public oficials( political and civil), we have to take it out on others. First is on our capital projects. Many of our contractors will have to demobilize and send their workers into the unemployment market. Unpaid certificates and invoices will pile up and loan defaults will increase. With this situation, do I need to reiterate my advice that we should as much as possible defer awarding new contracts, focus on completing existing projects and paying down debts. That will be more helpful to the economy in my view than awarding more contracts that will not be adequately funded. My hope therefore is to hear less of new contract awards after the weekly Federal Executive Council ( FEC) meetings. I will be pleased rather to hear of the percentage reduction in the outstanding debt to Contractors or indeed our overal debt burden. This will give at least a psychological lift to many, because, even the CME admitted that our debt obligation is increasing even under her watch. I trust that she knows what to do to halt this growing disturbing trend and I will encourage her to take bold actions. It will be double tragedy to have declining National income levels and then growing debt levels which may be difficult for us to pay as at when due. We had been there before!
The next level of burden bearers will be the rich or wealthy. I have no problem with Private Jet owners paying more tax, or those who import new cars paying additional levies or even those who fly business class paying new taxes. Nigeria has become a major consumer of Champagnes and wines from all over the World. Additional tax will touch many Nigerians. So from the 2nd Quarter or so, these items will cost more. Well I believe that this is enough warning for those of us who drink wines or champagne. This Christmas and new year festivities may be our last opportunity to drink cheap wines. The hint on increasing VAT on other tradeable items will have more far reaching implication on the economy. My caution will be that before we increase rates on taxes, we should do more on enforcing compliance. I believe that the current campaign by the Federal Inland Revenue Service( FIRS) to enforce compliance is in the right direction. Yes, some mistakes will be made and some missteps will happen, but we must push on to get more people voluntarily comply with our tax legislation. I believe that up to 50% of Nigerians and Businesses in Nigeria either do not pay taxes at all or they may not pay adequate taxes. My advice is that we should not use the same tactics in dealing with both. Those who pay taxes at all, and who may have underpaid or delayed in payment should not have their businesses shut down arbitrarily because of the impact on other aspects of the economy but those who dodge or evade tax should receive maximum penalty.
How ever we look at the 2015 Budget proposals, the road ahead will be tough but I believe that if we are sincere and consistent with the implementation of the measures outlined by government , we may scale through. For example, it is nearly three years since Oronsanye's report on rationalizing MDAs, and not much has really happened after the white paper. The CME was still talking of planning to send the bills to the National Assembly. I believe we have heard this before. We talk of reducing foreign travels and foreign training, we also have heard of that in the past. This penchant of Government to announce things they plan to do even when they have not given sufficient thought to it, leaves sour taste in the mouth and creates credibility gaps. All these measures reeled out should be implemented faithfully and with despatch. It will be insulting our intelligence if these same measures are rehearsed again next year, when things may have gotten worse. I know that Government has a notoriety for poor policy implementation but we must avoid that this time. The Nation is in dire stress, and prompt actions must be taken expeditiously.
Nigerians, rich and poor have been requested to make sacrifices to help the Country overcome its presenting economic challenges, on top of the persisting security challenges. Knowing Nigerians, they would be willing to do so, but. The ' but' is that the Government must ensure it walks the talk. All the excesses of our Public Servants ( in the three arms of Govt- Legislature, Judiciary and Executive, and three tiers of governance- Local, State and Federal) must be drastically cut down immediately to sign post a seriousness. For example, we should outlaw convoys that accompany important and not so important government officials when they are going to the airport or just attending a social event. There is so much waste in Government which can be saved to help reduce deficit and the pressure to borrow. I hope this battle will not be left to the CME alone . I request the President to lead this battle to involve all aspects of National governance, so that we can begin to see results by the end of Q1,2015, the electioneering campaigns not withstanding.
For the rest of us, as we brace up to pay more taxes and face the imminent inflation( notwithstanding the official story of declining inflation), I recommend that we take out time to really enjoy this Christmas when many items are still relatively more affordable. If this oil wahala continues and government is forced to take more adjustment and austerity measures, we may be forced to go without a lot more in the months ahead. So if I were you, I would rather get the best that is possible this Christmas and March into 2015 with faith and hope. Merry Christmas, Nigerians. Please let it be merry for Jesus sake!
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