Alternative To Bail Out: OPS, Others Recommend Fiscal Discipline, Review Of Revenue Formula

Godwin Emefiele, CBN Governor

Godwin Emefiele, CBN Governor

Gov. Aregbesola

Gov. Aregbesola

WHILE the controversy generated by the over N700 billion bail out for states last month continues to rage, experts and

members of the organised private sector have advocated resource control or new revenue formula as virile alternative. According to them, it is important to find a better source of funding for the

states to avoid another round of bailout for them.

The Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, said to forestall future bail out for states, there is need




Kogi State governor, Idris Wada

to address the issue of federalism to ensure resource control by the states.

“We have to look at the issue of federalism. The bulk of resources from minerals go to the centre. With the way things are structured, if you have a thriving private sector in your domain as a state, the only tangible thing you can get is Pay As You Earn (PAYE). Corporate tax, Value Added tax (VAT) education and all the critical taxes go to the centre. If as a state, you discover oil well, or solid mineral, you have no control over it. Even if you bring investors, all the key taxes that investors will pay go to the Federal Purse. Apart from few states where you have a large pool of workers and commercial activities like Lagos, Kano, and Port Harcourt, where you have people that earn good salaries, in other states, how much can you get from PAYE? So we need to address the issue of federalism, which would even encourage the states to do more, in terms of attracting investors. But you struggle to bring an investor into your state and then what is your benefit at the end of the day? Just PAYE and may be if you look at the people manufacturing there, 95 percent of the work force are factory workers. How much are they earning to get reasonable PAYE? So the issue of federalism needs to be addressed to reduce the over dependence of states on the federation account.”

On the need for states to improve on their Internally Generated Revenue (IGR), the LCC boss said they needed to create enabling environment for investment after taking care of the issue of federalism.

“You need to address federalism so that states can get better reward for attracting investment into their domain. After that, they would need to create enabling environment for investment, by giving investors incentives, especially in the area of land acquisition. The states should also form the habit of savings. What is good at the Federal is also good at the states level. I know that Anambra State has savings and that is why they don’t have issues. We are not as poor as it seems to be. Many agencies of government are not remitting what they should. If there is better discipline in governance, there are lots of internal revenue generation agencies like Nigerian Ports Authority (NPA), Nigerian Maritime Administration and Safety Agency (NIMASA) Security and Exchange Commission (SEC) and many others. They are generating huge revenue that should come to the government. So we need to review our fiscal responsibility Act to enable government earn more revenue from these agencies with surplus funds.

Still on financial health of the states, he said it is not possible for bailout to continue for ever, as he identified corruption, reckless spending and bloated workforce, especially political appointees as an aspect that needed to be corrected by many of the states.

A Lecturer at the department of Economics, University of Lagos Dr. Dele Balogun, said, there is need to review the current sharing formula between the Federal, States and Local Governments, as it could be difficult to adjust the federal system to enable them have control of resources within their domain.

“To prevent a reoccurrence, state governors should be made accountable for the soft loan given by the Central Bank of Nigeria (CBN). They should sign an undertaking on how to repay the loan with interest, and to also give a standing order on monthly deduction from their monthly allocations.”
Continuing, he said, “ ideally, every state should strive to be viable; be prudent and generate their own revenue and then see what comes from the federal allocation as an addition and not the other way round because it is not every revenue earned that is sent to the federation account”

Making a strong case for a review of the current revenue formula, he said: “ there is need for another sharing arrangement because the current sharing formula was done during the military era without consideration for population, size and other criteria, while little was left for states where resources were being derived.”

According to the lecturer, resource control for states would have been a better option out of the problem, but the laws might make it difficult to go that way.
“As good as it sounds, it would be difficult to achieve because some of the resources are on concurrent and executive list and it implies that Nigeria would have to change from the federal system for that to happen.”

Dr. Oke Babatunde, of the Department of Finance, University of Lagos also agreed with his colleague on the need to review the revenue formula.
“We need to review the sharing formula to know who gets what and at what rate because it is contentious. However, states should come up with innovative ideas and strategy. The main issue is not about states having control of their resources, but what they have done with the ones they have. This is a matter of judicious use of what they have. Some of the states don’t have mineral resources in commercial quantity. They should all see Agriculture as a viable option, especially for states that have farms, but have little or no commercial activities. The more farms, the more people get employed, the more employment you have, the more the growth of your resources. States have become lazy over the years because of the largesse from the Federal Government. It is imperative that they become creative with their revenue generation by using tested and trusted hands to provide things that generate revenue.”

A Professor of Comparative Politics and Public Policy, University of Benin, Augustin Ikelegbe commended the Federal Government for the bail out, saying it demonstrated sensitivity to the plight of the states.

“You will realise that many of the states are not viable when it comes to revenue generation outside the federation account, if you remove federation account from many of the states, they will not be able to survive. But that is not just the issue; there have been fiscal recklessness in many of the states. We know that the revenue from the federation has dwindled and the money available for sharing is now smaller. Some of the state governments did not give priority to workers’ welfare, which ought to have been at the forefront because those who have worked deserved their wages before you start talking of other expenditures.

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