Erstwhile Vice-President and Peoples Democratic Party, PDP, presidential aspirant Atiku Abubakar picked holes with President Goodluck Jonathan's 2011 Budget proposal and unfolded what he described as a shock therapy to reverse the recurrent proportion of government expenditure which he put at 80 per cent.
Under Atiku's proposal to reverse what he said was an unsustainable burden of recurrent expenditure, the former vice president is promising to channel all receipts from oil and gas towards the development of infrastructure and education while at the same time limiting recurrent expenditure to government tax receipts.
How feasible will this be?
I know that while N2.5 trillion of the N4.226.19 trillion budgeted for next year is to be spent on recurrent expenditure, only N1.005 trillion, less than 50 per cent, is to be spent on capital projects. Nigerian currently derives more than 80 per cent of its revenue from oil.
Now under Atiku's proposal that would mean that Government generated receipts in a year outside our oil earnings should amount to N2.5 trillion for Atiku's plan to be workable. Alternatively, there would be serious cutbacks on government overhead expenditure. Especially on the N1.12 trillion about N94, 959,545,401.20 billion that is spent on salaries of political office holders and N1, 031,654,689,033.18 trillion that goes to their allowances annually.
Is this workable?
Some helpful data: 2007 to 2010:
The 2007 Budget was predicated on a production volume of 2.5 million barrels per day and a benchmark price of US$40 per barrel. Based on these assumptions and a projected N100 billion from Independent revenue sources, projected total revenue available to fund the federal budget is N1.73
The 2008 Budget was based on a number of assumptions and it is driven by the need to meet certain targets. These are: Oil price of $53.83 per barrel, Crude oil production of 2.45 million barrels per day, Joint Venture Cash Calls of US$4.97billlion, Exchange rate of N117 to US$1
The budget is based on a prudent benchmark price US$53.83 per barrel to ensure that we fund the budget with predictable revenues, whilst ensuring that the benchmark price remains realistic.
Based on these assumptions, Then President, Late Umaru Yar'adua expected the sum of N4.539 trillion to accrue to the Federation Account. This represented an increase of 5.5% over 2007.
Oil Revenue iwa estimated at N3.629 trillion after taking account of existing commitments to Joint Venture Cash Calls of N0.581 trillion, while Non-Oil Revenue is estimated at N0.91 trillion. Oil Revenue represents 80% of the total estimated revenue; while Non-Oil Revenue represents 20%.The aggregate projection for Federation Account receipts in 2008 was N4.529trillion.
Oil-related revenue was expected to amount to N3.606trillion or 80% of this sum while non-oil sources of revenue were to account for the balance of N923billion or 20%.
The 2009 Budget was predicated on certain key assumptions that take a realistic fiscal outlook for 2009. These include:
• Oil production of 2.292mbpd
• Benchmark oil price of US$45/barrel
• Joint Venture cash calls of US$5billion
On the basis of these assumptions, taking into account the revenue sharing formula, the total federally collected revenue is projected at N5.131trillion, which includes oil revenues of N2.9405trillion and non-oil revenues of N1.973trillion (as well as other non-Federation Account items such as grants and special levies amounting to N217.5billion). The total Revenue for the Federal Government Budget was forecast at N1.778trillion including Independent Revenue of N306billion.
For 2010 Budget:
Following from these assumptions and the operation of the revenue sharing formula, total Revenue for the Federal Government Budget was forecast at N2.517 trillion. There is a deliberate expansion in budgeted expenditure over that of previous fiscal years to counter the effect of the credit crunch on the economy as well as to reduce the infrastructure gap.
Accordingly, the aggregate expenditure for 2010 is N4.079trillion, comprising N180.28billion for Statutory Transfers, N517.07billion for Debt Service, N2.011 trillion for Recurrent (Non-Debt) Expenditure and N1.370 trillion for Capital Expenditure. This represents a 31.5% expansion over the N3.102trillion appropriated in 2009
Based on the above date, how would Atiku raise non-oil revenue to pay for his FGN Recurrent expenditure?
Proposing what he described as a shock therapy to reverse the proportion of 80 per cent spent on recurrent expenses, Atiku at a session with senior media professionals in Lagos on Sunday evening said: "Almost 80% of government income is spent on recurrent. This is what is used in paying salaries, allowances and all that. I want to reverse it. I want to propose to Nigerians that every money that is earned from petroleum resources we should use it to develop our country's infrastructure and every money we make from the Federal Inland Revenue Service, from taxation to VAT and so on and so forth we should use it as recurrent.
"Unless you implement this shock therapy you will not develop this great country, we all have to make sacrifices because no amount…because at the rate we are going there is no amount. 80 per cent of your income is going into recurrent, so I was thinking one day, why can't we reverse it? All the money we earn from oil let us dedicate it to develop infrastructure, education, power and jobs and so on and so forth."
Now, Note that from 2007 to 2010 as in preceding years, Oil Revenue represents 80% of the total estimated revenue; while Non-Oil Revenue represents 20%.
In 2009, non-oil sources of revenue were to account for the balance of N923billion or 20%. In 2009, non-oil revenues of N1.973trillion (as well as other non-Federation Account items such as grants and special levies amounting to N217.5billion; But the aggregate expenditure for 2010, is N2.011 trillion for Recurrent (Non-Debt) Expenditure.
In other words, receipts from non-oil sources would not be enough to pay for our recurrent expenditure.
What then would be Atiku's magic? This question becomes more pertinent when you take into consideration that Atiku proposes to limit recurrent expenditure to "government tax receipts", thus removing revenue even from non-oil sources like solid minerals.
Publisher: www.elombah.com
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