After intense horse trading between the executive and legislature over appropriate oil benchmark, Minister of Finance, Ngozi Okonjo-Iweala on behalf of President Goodluck Jonathan presented the 2014 Federal Budget proposal of N4.91 trillion to the National Assembly with the theme “Budget for Job Creation and Inclusive Growth” on Thursday 19 December 2013.

The agreed benchmark was $77.5/barrel. The 2014 budget, described by some as ‘’Ritual without Meaning’’ was supposedly targeted at consolidating the achievements of 2013 in terms of GDP growth and unemployment rate reduction among others. The business was as usual with recurrent expenditure receiving lion’s share while capital expenditure was a paltry 27per cent.

Although the agric sector is widely believed to be improving, other purported sectoral growth failed to impact significantly on lives of the citizens as employments were only generated in dreams.  By September the National Bureau of Statistics announced that unemployment has hiked to 23.9 per cent against the 22 per cent of the previous year. Again, insecurity continued to grow in direct proportion to increments in security budget allocations.

Budget as an article of faith of every serious nation is expected to be anchored or prepared base on government’s priorities and vision of development, global economic environment, domestic macro-environment, setting revenue parameters, gross resource availability, sustainability of deficit and debt, ratio of capital spending in total spending, macroeconomic stability and growth promotion, social inclusion and job creation among others. Analysts however, said in as much as government shy away from looking at the mirror to identify what are first priorities and vision of development, which depends on type of economic environment set, Nigeria’s budgets will continue to fail to serve major purposes.

Government has attributed insignificant performance of 2014 budget in many areas  to uncertainty in the economy, global crude oil price crash, insurgency and attacks on oil facilities, which were rampant. Officials further point at sluggish global economic recovery with growth projections revised from 3.7 per cent (April) to 3.3 per cent (October) for 2014.

The Economic Confidential magazine and many individual experts have advised the government to diversify the economy away from oil revenue as its major source of earning. The prophecy was that if oil market crashed, Nigeria will surfer to meet its financial obligations. Now that the economy speaks itself aloud, the government is ready to buy the advice and to masquerade the whole process as “austerity measure” this year.

In its declaration to diversify the economy, the Federal Government on December 17, 2014, officially announced austerity measures aimed at cushioning the impact of the drop in oil prices on the economy in a bid to generate additional revenues to fund the 2015 budget.

According to the 2015 Appropriation Bill again laid before the legislature by Okonjo-Iweala on behalf of the President in Abuja, a total sum of N4, 460.46 billion inclusive of Subsidy Re-Investment and Empowerment Programme (SURE-P) is to be expended in 2015. N2, 616.01 billion and N633.53 billion were budgeted for Recurrent and Capital expenditure respectively. The recurrent expenditure for 2015 is greater than that of 2014 (N2, 468.83) while it is less for Capital expenditure (N1, 552.99). This proposal is anchored on $65 benchmark oil price, oil production of 2.2782 million barrel per day, average exchange rate of N165/USD and GDP growth rate of 5.5per cent.

The Minister of Finance explained that the austerity measures would be implemented from the beginning of the second quarter of 2015 and would considerably boost the ratio of non-oil revenues to oil revenues. Thus it is time to diversify the economy.

She detailed the measures and how much they would contribute to the treasury, saying that the government would generate more revenue through the strengthening of tax administration. This, she said, would be achieved if the affluent in the society contributed a bit more towards easing the pains being felt from the economic crunch. She added that as a short term measure, a 10 per cent import surcharge would be imposed on new private jets. This is estimated to yield about N3.7bn revenue in 2015.

Similarly, the minister explained that a 39 per cent import surcharge would be imposed on luxury yachts, which potentially will contribute N1.6bn in 2015; while another five per cent import surcharge would be placed on luxury cars, which is estimated to yield about N2.6bn in additional revenues.

In the same vein, Okonjo-Iweala said a surcharge on business and first class tickets would be imposed on air travellers. She, however, did not stipulate the rate to be applied for the levy and how much it would generate.

Others are the imposition of three per cent luxury surcharge on champagnes, wines and spirits expected to generate about N2.3bn next year; and a one per cent mansion tax on residential properties within the Federal Capital Territory, with value of N300 million and above. The tax for luxury buildings within the FCT, according to the minister, is estimated to yield additional N360m to the coffers of government.

On tax waivers and exemptions, the minister lamented that analyses had shown that about 30 per cent of those that received tax waivers from the government, especially under the Pioneer Status Scheme, were now abusing the system. As a short-term measure to address this anomaly, she explained that the government had commenced a review of the implementation of the pioneer status exemptions for some oil companies. This, she noted, could unlock up to N36bn of additional tax revenues this year.

While she noted that all the surcharges would yield about N10.56bn in 2015, she insisted “We should see these challenging times as times of opportunities to further move this economy on the right path. Luckily, this administration has taken to diversification seriously and began to make inroads prior to this time.

“The non-oil sector, whose growth has averaged about eight per cent in the last few years, is the primary driver of growth in the economy unlike the oil sector, which is actually contracting. In the short term, we are determined to improve tax revenues, not by increasing tax rates as many have advised, but rather as a pro-people administration, by strengthening our tax administration.”

On Value Added Tax (VAT), Okonjo-Iweala hinted that the current framework for VAT revenue might be adjusted to enable states and local governments get more revenue. Under the current framework for allocation of VAT revenue, the Federal Government gets 15 per cent; states, 50 per cent; while the local governments are given 35 per cent. She said, in the medium term, it would be important to focus on tax policy to see where opportunities lie in order to streamline and rationalise certain taxes and levies, while looking to boost others. For example, she said, “Nigeria has one of the lowest VAT rates in the world and medium term efforts must involve the legislature to see what opportunities exist with VAT, which largely benefits the states.

“Whilst the state governments get 85 per cent of VAT, the Federal Government gets just 15 per cent. A five per cent increase in VAT rate, for instance, will yield N614bn, most of which will go to the states and local governments.

In this year 2015 fiscal period, the minister also said the government would be ramping up the tax initiative with McKinsey to contribute extra N160bn in tax receipts and aggregate of about N460bn over and above the 2014 levels in the 2015-2017 periods.

In the area of Independent Government Revenue, Okonjo-Iweala said actual receipts had continued to grow from about N182bn in 2011 to N274bn in 2013 and N328bn as of October 2014. While she said this was encouraging, the minister noted that there were still leakages and incidences of non-remittance of requisite funds to the treasury by some agencies. She hinted that “Mr. President recently summoned a meeting of the revenue generating agencies to address this issue and subsequently issued an unequivocal directive to all revenue agencies to ensure remittance of their obligations to the treasury.

“With this strong support, we are working with the banks to ensure strict compliance, and so we have projected IGR receipts of N450bn for 2015,” She noted.

At the angle of expenditure, Okonjo-Iweala unveiled a number of specific measures aimed at reducing spending and their savings to the nation’s treasury. This exercise, she noted, would save a total of N82.5bn and would include cuts to international travels and training by 50 per cent for all Ministries, Departments and Agencies of the government. However, she did not explain whether, the President will also cut his frequent international travels including to Israel for political affairs in the name of religion.

While she noted that this would enable the government to save about N14bn, She added that other provisions for overhead expenditure have been dropped completely, thus saving about N4bn for the country.

She said, “Administrative expenditure for buildings equipment and supplies as well as MDAs’ provisions for the procurement of administrative supplies and equipment will be cut, saving about N5bn.

“Procurement and upgrade of buildings were similarly curtailed, saving about N44bn, while another N76bn is proposed for reallocation to more impactful programs of government in the security, health and education sectors.

“We have also commenced partial implementation of the government’s Whitepaper on the rationalization of agencies based on the Oronsaye report. We have built in savings of about N6.5bn in the 2015 budget from the rationalization of some agencies, committees and commissions. Nevertheless, medium term measures require greater efforts to cut the cost of governance across all tiers and branches of government. This requires support from the legislature to amend laws underpinning certain agencies. A list of such laws will be submitted to the National Assembly for consideration by the second quarter of 2015.

“I believe that the discipline these new measures impose will go a long way to support the economy and provide Nigeria a responsible pathway to overcoming the limitations of falling oil revenues without disproportionately affecting the poor-to-middle class’’, the Minister appealed.

However, some experts have suggested that government should design with immediate effect, a measure that will arrest all the pains especially from the recent devaluation of naira by the Central Bank of Nigeria (CBN).

For instance, the Manufacturing Association of Nigeria (MAN) is already sharing from the impact of the inflation. In a meeting summoned by Economic Policy Committee (EPC) of MAN in Lagos last month, a reliable source revealed that members lamented the severe impact of the erosion of naira’s purchasing parity on their businesses and the attendant increase in prices of raw materials, machineries, spare parts and all other import-dependent procurements. These, they said, has led to very significant increase in the cost of production and leading to un-competitiveness of local products especially in the face of the impending implementation of the ECOWAS Common External Tariff (CET) this January, which will allow goods from any other part of West Africa move into Nigeria without the imposition of any form of tax, import duty or levy.

“We are forced to raise the prices of our products because our cost of production has gone up significantly due to the devalued naira but also our customers have been affected by the downturn in the economy and may now be unable to buy up these products, leading to increased inventory in our factories and then all the attendant problems”, the members hinted.

These are hard times, but if the austerity measures are handled well and with integrity, it might provide the much needed opportunity for the inevitable shift from a mono-economy and its attendant problems, to the full exploitation of the variegated resources with which our nation is so richly blessed.