₦airaland Forum

Reddit:
Posted By CHUBA EZEKWESILI
on December 29, 2014

The theme of 2014’s Budget was ‘inclusive budget’. Whether it was indeed inclusive or not is debatable. Given the current economic climate, 2015’s budget radically departs from that narrative – it is barely inclusive. This is bad, but there’s good news…The proposed 2015 budget is one largely based on faith; so given our religious propensity, we should be quite familiar with it. Fret not, you’ll need that faith when you understand the composition of our 2015 budget.

Wait First. What Exactly is This Budget Thing?

For those who know, feel free to skip this. For those that don’t, you’ll need this part to understand the ‘wisdom’ of Nigeria’s 2015 budget. A national budget is simply an estimate of a government’s anticipated revenue and expenditure during the year. The Nigerian Government plans to spend N4.3trillion in 2015.

The budget consists of two major parts: the recurrent and the capital cost. Recurrent consists mainly of expenditure on wages, salaries and statutory transfers, purchases of goods and services, and debt service. Clearly, recurrent cost keeps the Government running and the civil servants happy. This is great for those in Government, but for the overall economy and the people, the benefits are negligible. To the economy, recurrent cost is like when that Uncle comes during Christmas to give you money for biscuit and sweet. You spend it and that’s the end. The effects are direct, but neither long lasting nor inclusive.

Capital expenditure typically consists of infrastructures such as bridges, hospitals, schools, etc. It’s through capital expenditures that infrastructure and other critical services that touch majority of the people are provided. The only way you’ll directly feel the impact of the budget as a citizen is through the capital expenditures – not monetarily, but through an improvement in quality of living. Capital expenditure is like what your mother spends on your education – you might not appreciate it, but it goes a long way.

So What Does the Budget Have to Do With This Austerity Thing We Keep Hearing About?

Austerity measures are policies used to tighten government expenditure, close loopholes that cause revenue losses and a gross reduction of budget deficits during adverse economic conditions. Why does Nigeria need austerity measures? Nigeria is kinda broke due to falling oil price. You can read more on how we got into this mess here.

Austerity measures are created to ‘trim the fat’ of government, so money goes to crucial areas that encourage economic development. This means that recurrent costs like high wages and salaries, duplicate workers, unnecessary spendings on travels and new goods get cut.

Ohhh. So The Budget Should Ideally Spend More on Capital Than on Recurrent, Right?

Well…not exactly. In fact, not at all. For all the talk about austerity measures, Nigeria’s recurrent cost rose. The budget showed that Recurrent Expenditure takes 91% of the budget, rising from N2.468tn to N2.616tn.

Spending more on Capital cost than recurrent might be the most economic prudent decision, but it never happens. Even in the good old days of higher oil revenue, Capital expenditure suffered. Capital expenditure dips from N1.55tn in 2014 to N387bn in 2015. That’s from 24% to 9% of overall budget. Sadly, capital expenditure is like the unappreciated house-help that does all the work and yet doesn’t get Christmas clothes.

Governments find cutting capital costs easier cause there’s little direct impact on the pocket of citizens as compared to cutting recurrent cost. The Nigerian Government is one of the largest employer of labor in the country, so it would be politically suicidal to go on a firing spree during this election period. Moreover, it’s simply hard to get the same people setting their wages to cut it down. Also, with a new presidential private jet and the usual 150 billion for the National Assembly included in the 2015 Budget, it seems the angel of austerity spared top Government officials just like the angel of Death spared the Israelites in Egypt.

In the short run, it might be the easier and more politically-expedient move to sacrifice capital expenditure on the altar of recurrent cost, but its not the smartest move. The overall health of the economy suffers from this move. It’s like your mother spending on your Christmas cloth rather than keeping money for your January school fees. It’s sweet now, but painful later.

So How Does the Government Plan to Fund the Budget?

A budget is only as useful as the amount you have. If you like, write a long list, when you go to the market with only N10, you’ll only come out with pure water. Similarly, with our falling oil revenue, Nigeria desperately needs to find money from other sources. Nigeria plans to sponsor the budget with oil revenue and make up the rest of the revenue by diversifying its non-oil revenue sources, and broadening and updating its sources of tax receipts.

This is the part where the budget’s theme goes from ‘austerity budget’ to ‘faith budget’. Nigeria’s budget benchmark is set at $65 per barrel, however, the price of oil is currently at $59 and could fall further. In fact, Saudi Arabia has their 2015 budget benchmark at $60. They’re obviously less optimistic than we are. If they’re right, it means we’ll make less money than we’re expecting. It’s like buying the iPhone 6 on credit, only to find out that your dad gave you money for a Techno phone.

There’s also a tad bit too much optimism on the non-oil revenue front. The Federal Government expects to bring in N1.68tn for 2015. Given that revenue generated in 2013 was N1.07tn, our 2015 target might be a bit too optimistic. Perhaps if independent revenue agencies and MDAs get squeezed, we could pull in N1.2tn. Remember, this is also by faith.

Also, increasing taxes should bring in some money. The tax on luxury items such as private jets, luxury yachts, luxury cars, business and first class airline tickets, champagnes, wines and spirits adds to N10.56 Billion in a year. I’m uncertain how much it does, but just for some perspective, N21 Billion was donated to the President’s election campaign in one night.

So What Happens If the Revenue Doesn’t Add Up?

When this happens to a Government, the next step is typically to borrow in order to cover the budget cost. If oil prices stay below $65 per barrel, we shall borrow. If our volume of crude oil sold falls below our target, ‘borrow borrow’ will continue. And if we do not meet our quite optimistic non-oil revenue target, we will continue borrowing. Our domestic debt has risen from N4.55trillion in 2010 to N7.65trillion as at September 2014…and things were still a bit economically smooth back then.

Yes. That’s a lot of borrowing. The Government knows this and has tried to stem it. After the curtailing of international travels, reduction of procurement and upgrade of buildings, and a partial implementation of the Steve Oronsaye report, the Government will save N82 billion next year. Aunty Ngozi try small, but a glance at the composition of the budget still ‘dey turn belle.’

So What’s The Implication?

The budget report mentions several government efforts at diversification of revenue, but the act of slashing capital expenditure introduces a conundrum. For us to increase our non-oil revenue, we must diversify. However, diversification of the economy can only occur if capital spending is high, not when you slash it – which is exactly what we’re doing.

The budget depicts the future economic plan of a government for its country. If so, then Nigeria’s proposed 2015 budget goes a step backward into our past to highlight our addiction to extravagantly large governments and our nonchalance for strategic long-term investment.

We’ve treated the economy the same way we treat our roads. We wait for it to have huge potholes, then kill a bus load of (preferably prominent) people before it gets fixed. Meanwhile, those who drive down the road do so by faith, hoping not to get killed. Currently, we’re staring at the potholes littering our economy’s future and there’s need to not only avoid them, we’ve got to fix them. This 2015 budget might just optimistically dodge these holes, but it’ll do little to fix them. Merry Christmas and a Happy New Year to all! With a budget like this, you’ll need all the happiness you can get in 2015.

NB: I’m sure there’s a legitimate reason the budget presentation looks like a cake…

Source

if everybody could enlighten us like this 2015 will definitely get better. Not politically inclined post every 15 secs.

@reddit, please I'm not so good with economic theory and budget wahala. But I have a question to ask. You mentioned austerity measures put in place by government, is the devaluation of Naira part of it? Secondly, what does the devaluation mean for us, will things get better or worse next year if Naira value keeps moving from N193 to say N 250 against the dollar and how will that impact on the cost of living and price of buying goods?

DeKasablanca:
That sounds like an insult nicely packaged in a compliment.

guess its my bad 4being diplomatically sarcastic,i suppose wateva rocks ur boat wld just do

Onegai:
Excellent post.

Please everyone, remember that the present Government is filled with both APC and PDP members and we are still heading to this mess. So stop fighting over parties and start demanding from your Senators, Governors, Representatives, to perform.

As for me, I'm going to vote for the person that shows me clear plans for Health, Economic Growth, Education, Power and Sustainable Development.Not story, because this budget shows that the present Govt (filled with APC and PDP members) is still thinking of their comfort than the future of my children, your families and our parents.

As you keep fighting, please know that Oil and Gas companies are quietly retrenching staff, closing down offices and refusing to pay salaries. Please know that Banks have unsustainable growth and are refusing to hire extra new staff, preferring experienced people who they can make work 2 jobs yet pay one salary to. Even my company is slashing salaries and making their in-house retail sales teams marketers and putting new staff on contract basis. Schools are either increasing their schoolfees or demanding parents to pay up their wards' fees by January 5, 2015 (they even sent texts every 3 days demanding payment for a term no child has started). Prices of everything has increased (try buying a phone) and some importers are asking clients to pay in dollars if they want the former lower price. A lot of state govt workers like schoolteachers and doctors haven't been paid for at least 2 months.

And this budget shows that no-one in govt is planning on at least fixing infrastructure and power so we can stop importing everything, start manufacturing (not assembling) and create skilled jobs (not factory jobs where you can be substituted for a cheaper worker one day). And we need to produce Agriculture enough to crash food prices locally first, we cannot feed our country cheaply, yet we want to export on a large scale.

So 2015 is going to be bloody financially.

Neither candidate (Buhari or GEJ) has done enough to convince me to vote. I will rather use my time to worry about myself next year than waste it screaming "APC, PDP". Those guys couldn't care less about me.

What an intelligent post! I totally agree with you. In my home, I have started applying strict measures and trying to support govt in my own corner. I now buy local rice. I also will start to wear local clothes and shoes and be proud of them. I have seen APC'S road map and it had nothing about cutting govt expenses, so for now it's still the same old stuff. I also wonder where they will get all the money for those their promises. For now its every man to himself as usual. May God help us all.

ibson99:
On the issue of cutting costs, I think its past time we remove constituency project allowance from the remuneration of our lawmakers, its completely useless cos most of them don't do any project and that alone is over 50% of their exuberant pay.
and on generating more money, its time we looked at how to tax gambling in this country, most bookmakers are making huge money from Nigerian gamblers and they don't even pay a dime in taxes. Britain is already talking about how it wants to generate 1b£ from its gamblers, we can too.

Knowledge is key!!

Try find out how much each state and the federal govt make from bookies in

taxes, monthly good cause charges and annual operating license fees.

You'll be shocked

avuekwe:
@reddit, please I'm not so good with economic theory and budget wahala. But I have a question to ask. You mentioned austerity measures put in place by government, is the devaluation of Naira part of it? Secondly, what does the devaluation mean for us, will things get better or worse next year if Naira value keeps moving from N193 to say N 250 against the dollar and how will that impact on the cost of living and price of buying goods?

The free fall of oil price is not only sending our currency on a downward trend, it is also making it difficult for the CBN to defend the naira, this is a double jeopardy. As long as the CBN keeps trying to defend the naira, it burns our external reserve pretty fast, this is not a good sign. So by relaxing the value of the naira a bit is a good thing to do.

Devaluation like in many other economies creates winners and losers. The losers are those that make their money in naira but have to spend in dollars, like the importers, shopping and flying abroad, paying tuition fees abroad etc. While the winners are those that make their money in dollars but have to spend in naira, exporters also benefit.
In the long run if the value of the naira keeps falling, the economy at large will be affected. Nigeria is an import dependent nation, by this, the general cost of goods and services will rise and you know what that means, high inflation. Not good at all.

I hope this helps?

Thanks

baslone:
Knowledge is key!!

Try find out how much each state and the federal govt make from bookies in

taxes, monthly good cause charges and annual operating license fees.

You'll be shocked

they don't, cos the constitution regards betting as gambling, and the constitution is vague abt gambling. If anybody is collecting any thing from bookies trust me it doesn't get to the government's purse

9c 1.

Onegai:
Excellent post.

Please everyone, remember that the present Government is filled with both APC and PDP members and we are still heading to this mess. So stop fighting over parties and start demanding from your Senators, Governors, Representatives, to perform.

As for me, I'm going to vote for the person that shows me clear plans for Health, Economic Growth, Education, Power and Sustainable Development.Not story, because this budget shows that the present Govt (filled with APC and PDP members) is still thinking of their comfort than the future of my children, your families and our parents.

As you keep fighting, please know that Oil and Gas companies are quietly retrenching staff, closing down offices and refusing to pay salaries. Please know that Banks have unsustainable growth and are refusing to hire extra new staff, preferring experienced people who they can make work 2 jobs yet pay one salary to. Even my company is slashing salaries and making their in-house retail sales teams marketers and putting new staff on contract basis. Schools are either increasing their schoolfees or demanding parents to pay up their wards' fees by January 5, 2015 (they even sent texts every 3 days demanding payment for a term no child has started). Prices of everything has increased (try buying a phone) and some importers are asking clients to pay in dollars if they want the former lower price. A lot of state govt workers like schoolteachers and doctors haven't been paid for at least 2 months.

And this budget shows that no-one in govt is planning on at least fixing infrastructure and power so we can stop importing everything, start manufacturing (not assembling) and create skilled jobs (not factory jobs where you can be substituted for a cheaper worker one day). And we need to produce Agriculture enough to crash food prices locally first, we cannot feed our country cheaply, yet we want to export on a large scale.

So 2015 is going to be bloody financially.

Neither candidate (Buhari or GEJ) has done enough to convince me to vote. I will rather use my time to worry about myself next year than waste it screaming "APC, PDP". Those guys couldn't care less about me.

Same here. Nice heads up.

Reddit:
The free fall of oil price is not only sending our currency on a downward trend, it is also making it difficult for the CBN to defend the naira, this is a double jeopardy. As long as the CBN keeps trying to defend the naira, it burns our external reserve pretty fast, this is not a good sign. So by relaxing the value of the naira a bit is a good thing to do.

Devaluation like in many other economies creates winners and losers. The losers are those that make their money in naira but have to spend in dollars, like the importers, shopping and flying abroad, paying tuition fees abroad etc. While the winners are those that make their money in dollars but have to spend in naira, exporters also benefit.
In the long run if the value of the naira keeps falling, the economy at large will be affected. Nigeria is an import dependent nation, by this, the general cost of goods and services will rise and you know what that means, high inflation. Not good at all.

I hope this helps?

Thanks

thanks, you made it clearer for me to grasp. I can plan accordingly

ibson99:
they don't, cos the constitution regards betting as gambling, and the constitution is vague abt gambling. If anybody is collecting any thing from bookies trust me it doesn't get to the government's purse

FG Operating licence for lotto is N50M exclusive of taxes, Lagos state charges N200M for lotto and N10M from operating bookies and N20M if you are a new bookie. For bookmakers- Rivers state charges N2.5M per year, Osun State- N1.2M per year, Ogun state N2.5M per year. . . . . I can go on and on for each state. . .

All these charges are exclusive of taxes and good causes which is between 2.5 to 5% percent of your monthly sales varying per state.

All these monies are paid into the Government's accounts and are monitored by the federal and respective states' Lotteries Boards and Revenue Services.

KwoiZabo:
#GEJtill2019

Sorry bro he just buhari already got a better result