Urgent Macroeconomics; Government and Taxes in Nigeria
This government had a strategy to diversify government receivables from oil exports. The strategy was based on tax. Yes. Collect more tax, which is not bad. If you assess other countries, they have sophisticated tax collection systems.
Lagos was given the responsibility and Tunde Fowler was drafted to FIRS. We all know how well he did in Lagos. That is one bloc of the story.
Sometimes you glean government policy when you pull the statement of leaders in the government together.
Asiwaju Tinubu is a Keynesian who believes in more taxes and government spending and intervention in business cycles. Thus, you see Fowler in FIRS and Vice President Osibajo always saying government must spend. This is a registered school of thought that works.
However, there is a little challenge. Macroeconomic policy is part signal, part execution . A government will announce a policy direction and not begin to effect because the announcement was meant to allay fears, reassure investors and prepare businesses and individuals.
When the APC led government announced plans to spend, they needed to increase collections by developing new systems as well as go through processes of looking for projects with the highest impact amongst other considerations.
In a nutshell, there is lag between implementation of fiscal policy and announcement. Any government that wants to spend more in a policy fashion has to tax more! IMF and co follow the codes and investors must see policy statements matched with action.
Another key thing which is most important is that to spend more you need to tax more because of cash flow. Yes. Government has need to service existing loans, a bogus national assembly, the 11 jets, 36 ministers and their families, state trips of the president which costs hundreds of thousand dollars, trips for ministers etc. It consumes cash!
Dogara and co shared billions just to vet the budget. You see why government needs to tax more?
We are in a recession and the politicians expenditure has not dropped by 1%. Government will surely tax more to stimulate the economy.
So there you have the economics of the lags in collecting taxes and spending.
Then, we think we will get some relief when the spending begins. I think so too. I also know that given the structure of our wealth creation, we will need to keep stimulating the economy artificially. The government spending is a short run equilibrium solution.
We have been subsidizing our economy with oil receipts and favourable interest rates for investors in our capital markets. We lack production structures that will create supply of dollars, foreign income and Foreign Direct investment.
We have had a cyclical labour market going hand in hand with a current account deficit for years.
We have had the wrong fundamentals because we can operate the business of government efficiently.
Why can’t we have an efficient government? Lack of true federalism. We just collect money and distribute. We don’t create wealth from production . We consume commodities wealth.
Until states/sub-national governments start thinking production and creating wealth and generating their own power, we’ll keep going round in circles.
We can avoid this. We can #RestructureNigeria.