We still have to contain ourselves for ten days before the formal handover to the new administration, and thereafter for the first indications of fiscal policy and for ministerial appointments. This is the downside of the US-style lengthy period of transition. We will assume: that the APC has no issues with the Fiscal Responsibility Act of 2007; that therefore it is not going to indulge in a borrowing spree to meet its spending commitments; and that it will not increase direct tax rates on individuals or companies outside the oil sector.
Gross federally collectible revenue amounted to N10.19trn in 2014 (vs N10.89trn in the year’s budget), and is projected at N9.78trn in the 2015 budget approved by the National Assembly (but awaiting the presidential sign-off). The APC has a revenue gap to fill before its manifesto pledges to low-income Nigerians.
We will step around the minefield that is the payment by the NNPC of its dues to the federation account. This is dangerous territory. The emir of Kano and former governor of the CBN, Sanusi Lamido Sanusi, has ensured that the subject remains topical with his measured contribution last Thursday to the Financial Times. Public relations people have suggested that the new administration produces a short audit of the NNPC’s finances soon after assuming office as a statement of intent.
Another powerful message would be the removal of the remaining fuel subsidies. Local media sources report that employees of the Subsidy Reinvestment and Empowerment Programme (SURE-P) are being laid off. This would tell most observers that there will no longer be any subsides to reinvest. The 2015 budget has N143bn for subsidy payments; even with deregulation, this allocation is too low because of payments arrears to the marketing companies. One broader point is that deregulation would be, at best, fiscally neutral because the FGN would have to offer some palliatives in compensation so as to “sell” the idea to the public and avoid the about-turn forced upon the PDP government in January 2012.
There is a bolder step involved, too. The outgoing administration established SURE-P, stressing both its autonomy and the standing of its top officials. The underlying message was that Nigerians might have little faith in their elected government but that they could trust such a standalone body. The removal of the programme (and other comparable bodies) invites Nigerians to give the government and the public sector the benefit of the doubt.
This is our personal take. Members of the Buhari camp have, however, given the impression that supervision and regulation across the economy will be enhanced. Government agencies could be merged but given sharper teeth, and standards of governance would improve in the process.
The slide in the oil price and the failure of the FGN to build substantial fiscal buffers have highlighted the paucity of non-oil revenue collection, which totalled N3.4trn (gross) in 2014 or 3.8 per cent of GDP. Rather than increase direct tax rates, the new administration may focus on collection and the strengthening of the revenue agencies. Leaving aside the size of the informal sector, too few companies are paying their taxes. MTN Nigeria has said that its contributions across all tiers of government represent 10 per cent of total non-oil collection.
Broadening the base requires more and better paid staff but also a hearts and minds campaign. A former governor of the South African Reserve Bank told us that in his country contract awards in the public sector above a low threshold were conditional upon the receipt of a statement from the revenue services that the beneficiary was current with their tax obligations. Faced with the loss of contracts which are often the core of their business, the vast majority of companies would pay their taxes and obtain a bona fide certificate of compliance.
On the cutting of wasteful expenditure, the outgoing government has already made savings by the elimination of ghost workers and pensioners, and by tighter procurement procedures. The APC in power is expected to prune the number of public agencies and implement the recommendations of the Oronsaye report. Changes in the law are required in many cases. Research by BusinessDay in December 2014 found that senators receive the equivalent of US$2.1m annually including allowances. In a global context this does not look good, and Nigerians may have objections on value-for-money grounds. In this extreme case, the legislators themselves would have to agree to a change (reduction).
Asset sales are another form of deficit financing, and have been little aired in crystal ball gazing beyond 28 May. We would value greater transparency. A recent CBN press release corrected a local media report on FGN spending in H2 2014 and noted that the deficit in the period was “financed mostly from privatization proceeds”. Some colour would have been welcome. As to possible sales, the Buhari camp has been quiet although the current CBN governor, Godwin Emefiele, has floated the possibility that the FGN sells some or all of the NNPC stake in the unincorporated joint ventures with the oil majors. Still on the oil sector, whenever the petroleum industry bill is passed in some form, the FGN could hold the first bidding round for new acreage since 2007 and generate some signature bonuses for deficit financing.
As we wait impatiently for the handover and the strands of the new fiscal policy, we would stress one constraint that receives little attention. If the APC is to deliver a good part of its pledges, it has to work closely with a productive assembly. For most of the past four years, the presidency and the majority in both houses belonged to the same party. The assembly’s agenda, however, was often driven by its institutional rather than its party political loyalties. This did not solely emerge in the annual to-ings and fro-ings over the budget.
Gregory Kronsten
