This budget hides something

For the second year running, President Goodluck Jonathan avoided addressing a joint sitting of the assembly’s two chambers to present the budget and instead sent Minister of Finance and Coordinating Minister for the Economy Dr. Ngozi Okonjo-Iweala to separately lay it before the two chambers.The budget’s submission was already much delayed, coming on December 17 […]

For the second year running, President Goodluck Jonathan avoided addressing a joint sitting of the assembly’s two chambers to present the budget and instead sent Minister of Finance and Coordinating Minister for the Economy Dr. Ngozi Okonjo-Iweala to separately lay it before the two chambers.
The budget’s submission was already much delayed, coming on December 17 when it should have been presented in September to enable its passage into law before year’s end. As it is, the lawmakers will begin to consider it only when they resume from a break in January. Delay is even the smaller part of the budget’s problems. Preparation of this year’s budget has been heavily overshadowed by the dramatic fall in the international prices of crude oil, the mainstay of this country’s government revenues and foreign exchange earnings. Twice the government submitted and twice it withdrew the Medium Term Expenditure Framework [MTEF] which guides budget estimates. President Jonathan said it had to be revised again and again due to developments in the international oil market.
According to the document submitted by Mrs Okonjo-Iweala, the Federal Government would spend N4.3trillion in 2015. This figure was arrived at based on oil production estimates of 2.28 million barrels per day; benchmark oil price of $65 per barrel [a $13 drop per barrel from last year’s $78], an exchange rate of N165 to the US dollar and a revised GDP growth rate of 5.5 per cent. The Federal Government projects to collect a revenue of N6.7 trillion, ramp up a fiscal deficit of N755 billion [0.79 per cent of GDP] and domestic borrowing of N570 billion. Given the level of crude oil theft going on in the country the 2.3 million daily production target sounds overly optimistic. It is however surpassed in optimism by the $65 oil price benchmark, since oil prices are now under $60 and still falling.
In her public presentation of the budget after submitting it to the National Assembly, the Finance Minister dwelt extensively on the most visible problem, which is how the government intends to make up for the drastic revenue shortfall from oil sources. She said the government would generate N650 billion from taxes as part of measures to cushion the effect of oil price shortfall. The country, she said, would in the medium term focus on a tax policy “to see where opportunities lie to streamline and rationalize certain taxes and levies whist looking to boost others.”
The minister unveiled a detailed plan to tax luxury items including a 10 per cent import surcharge on new private jets [to yield N3.7 billion], 39 per cent import surcharge on luxury yachts [to raise N1.6 billion], five per cent import surcharge on luxury cars [to yield N2.6 billion], another surcharge on business and first class airline tickets, 3 percent luxury surcharge on champagnes, wines and spirits [to generate N2.3 billion] and 1 percent Mansion Tax on residential properties with a value of N300 million and above in the FCT, which should yield N360 million. The surcharges taken together would yield N10.56 billion in 2015, which is like a bucket in the ocean. She however hinted at a rise in Value Added Tax (VAT), saying Nigeria has one of the lowest VAT rates in the world. She said a 5 percent VAT increase would yield N614 billion, 85% of which goes to state and local governments.
A proposed hike in VAT is likely to be resisted by Nigerians because it will affect the prices of goods and services all across the board. The minister said the thrust of generating additional revenue through taxes is directed at the rich while the poor and middle class will be spared. If that is the case,  5 to 10 percent surcharges on private aircraft, yachts, champagnes and mansions is but a slap on the wrist compared to 5 percent VAT hike which will be passed on to hapless consumers by business enterprises. If indeed the rich should pay for belt tightening, 100% surcharge on private jets and mansions should not be out of the question.
Mrs Okonjo-Iweala did mention some other revenue target areas
including a review of the implementation of pioneer status exemptions to some oil companies which she said could unlock N36 billion in additional tax revenues. She said analysis shows that 30 per cent of those that received tax waivers from government, especially under the pioneer status scheme, abuse the system.
A very important side of this story is expenditure. Anyone who is facing a potentially catastrophic slump in revenues should first of all curtail his spending before aiming to raise more revenue.  The Finance Minister said government has instituted measures aimed at cutting spending and expects to save N82 billion next year. The measures include cuts to international travels and training by 50 per cent for all MDAs [a saving of N14 billion] while N 4 billion would be saved by dropping some overhead expenditure items.  Another N5 billion is to be saved by cutting MDAs’ provisions for administrative supplies and equipment while N44 billion will be saved by curtailing procurement and upgrade of buildings. Again these are relatively paltry sums of money in the circumstances that we find ourselves.
The minister also said N6.5 billion will be saved through the partial implementation of the government’s whitepaper on the rationalization of agencies based on the Steve Oronsaye report. On the whole, it looks like this budget is unrealistically optimistic because the government wants to play down the magnitude of the economic crunch facing the country due to the election it is facing. In all likelihood, a real budget will only be unleashed on Nigerians after the 2015 election.