Of Empty Treasuries and Government Anxiety: What Does That Even Mean?
Recently the Federal government has expressed sufficient anxiety and agitation in pointing out to the public that the last government left behind an empty treasury. This has given rise to an emotional (and often partisan) debate on the health of public finance and treasury, and, especially, who is to blame for the perceived misspending and mismanagement. In joining this debate there are certain salient and presupposed notions to be examined and informed in order to establish a common understanding of the issues.
1) What does an empty treasury even mean?
The first question to be resolved is what did the current government mean when it proclaimed that the last government left behind an empty treasury?
a) Did it mean the 2015 budget (or the Medium Term Spending Plan –MTSP) is in primary deficit? The budget being the plan for revenue and expenditure in the current period (usually one year for the Government of Nigeria).
Budget deficit means the government spent (or planned to spend) more than it received (planned to receive). A deficit therefore raises other questions: From which source did government finance (plan to finance) the deficit? (i) Did the government finance it with expected future period surplus in the current budget or expected future surplus, in the short-term, in subsequent budgets (say the MTSP)? (ii) Did it finance it from country's external reserves? (iii) Did the government finance it from the value of the nation's stock of natural resources? (iv) Did it finance it from expected economic growth, which should lead to higher government revenue (that is if the money was put in growth investments)?
Depending on the financing source, a more important question before the assertion of mismanagement would be the reason for the deficit. That is, was the money spent on consumption (salaries and other overheads) or investment (infrastructure, technology, education, health etc) or strategic needs that are critical to the country's survival (e.g. 2015 election funding, spending on military to fight terrorism, or used to solve other existential problems that became immediately urgent after the passage of the original budget)?
Keeping money in your current account when there are needs for consumption and investment is not wise for individuals and is certainly not wise for countries with growth and development needs like Nigeria. Nigeria's primary surplus as at June stood at 2.9% which is quite healthy and it's largely, I suspect, due to the price of oil standing higher that the budgetary benchmark.
b) By Empty Treasury did the government mean empty (depleted) foreign reserves?
Nigeria's current reserves are over NGN41trillion and its Debt-to-GDP ratio is 11% (one of the lowest in the world). What the country should fight against is frivolous consumption. However, if the government is borrowing to invest and grow the economy in a prudent manner then there is so much scope for debt-financed-investment, -growth and -existential security. Admittedly, prudence and accountability have not come readily with Nigeria's democratic experience and experiment.
c) By Empty Treasury did the current government mean the previous government fully mortgaged the country's natural resources wealth?
Much of Nigeria's natural resources of oil, gas, solid minerals, forestry and agriculture etc remain untapped, unexplored and unexploited. The only focus is on cheap oil, which is running out, for, even with oil, investment to increase the country's proven reserves is poor because the government rushes to cash in on current proven reserves.
.2) Is the Anxiety Needed?
What the government needs is innovation in taxation to support government budget and plans, investment in infrastructure, technology, education and health to improve productivity, and credit to local entrepreneurs to increase capital stock in the country. The country also needs intense exploration of its resources of oil, gas, solid minerals, forestry and agriculture etc to prove the country's stock of natural resource wealth.
The Country needs to convert its natural resources into infrastructure, technology, capital stock and productive human capital that will lead to economic growth and development.
Since the government carries a yearly budget but actually receives and spends money monthly (or quarterly) it means every period has some receipt and expenditure within it, and, for a balanced budget, at the end of every period there should be no cash in the current account. Next period expenditure should naturally be taken care of within next period's (expected) receipt and, except with budgeted primary surplus, there is no reason to keep money while there is a budgetary cash call or a need.
If there is a primary surplus, as in our case, then what to do with it has to be decided by the National Assembly – invest (in infrastructure, health, education, technology, or credit to local entrepreneurs to increase capital stock), consume (frivolously or on needs) or save (to increase external reserves). Ideally, expected future period surplus could finance current deficit and vice versa.
Unfortunately the only pressure coming on the last government from the 7th Assembly and the period Governors was to consume on frivolities. Government could not have spent out of overall unexpected budget surplus without approval from the National Assembly through a supplementary budget instrument or a provision of the current budget bill that preauthorized the government to manage unexpected surplus (deficit) in a manner that sustains a balanced overall budget.
So then what's an empty treasury in the context of the budget of which the government spoke?
3) What does the Government Need?
i) What the government needs is innovation in taxation to support government budget and plans. investment in infrastructure, technology, education and health to improve productivity in the country.
According to the World Bank data for 2012 (http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS), at 1.6%, Nigeria's tax revenue-to-GDP ratio was only lower than four real countries (Bahrain, Saudi Arabia, United Arab Emirate and Kuwait) in 2014, however, it took Nigerians 908 hours, on average, to complete the documentation and fillings needed to pay taxes. The global average for tax revenue for that year was 14.1% of GDP and took 264 hours (Euro Area 17% and 165hours). Certainly innovation is needed in extracting more tax revenue from our GDP both in tax recovery and in making it easier for individuals and business to pay their taxes, and make government revenue mirror the country's GDP, as other countries'.
The great thing here is that taxation naturally strengthens democratic accountability as taxpayers tend to demand value for taxes paid. Nigeria's government steeped in fattening politicians sees a problem in this and seeks the easy way out- don't demand taxes and demand for accountability will not be passionate, and this will allow you to steal the little in the treasury without an emotional response and outburst from taxpayers. A situation where Nigeria's tax revenue is less than 2% of GDP and takes 908 hours of individual and business time and effort to pay the tax, given that the average for the top 30 economies is 18% and takes 170 hours, is an indication of government sleeping and getting drunk on cheap (oil) money or lacking in tax innovation or quite frankly avoiding the taxpayers' passionate demand for accountability that will naturally follow such innovations in taxation.
As an indicator, Nigeria's GDP of $534billion points to an opportunity, with appropriate innovation, for at least $100billion in tax revenue that can solve much of our country's current problems, if only the government is prepared to deliver the accountability that will strengthen our democracy, and will be demanded by the taxpayer. Compare this to the country's paltry US$30billion budget mostly funded from cheap lazy oil revenue.
Even the debate on the impact of Nigeria's GDP and its distribution on the citizens - the poverty-amidst-plenty debate - is tied to this (in)ability and (un)willingness of the government to extract tax revenue from the US$535billion GDP. Quite frankly, how does a government support a growing economy of US$535billion and a population of 180million on US$30billion budget? How does it fight poverty with a piece of this US$535billion without the most effective tool of taxation? How can Nigeria make its education, infrastructure, health systems and technology and capital stock reflect its GDP of US$535billion, and growing, without an innovation in taxation or the willingness to do so? Do we begin to imagine the impact on Nigeria's education, infrastructure, health systems and technology and capital stock of an extra (well managed) US$100billion every year in tax revenue. That is at least US$1Trillion in ten years, yes ONE TRILLION US DOLLARS (not Naira), invested in infrastructure, health, education, technology, and credit to local entrepreneurs to increase capital stock in just 10 years
If the current government needs money for consumption let it wait for current budgeted receipt or borrow against expected current surplus.
If it needs money to prudently invest or solve urgent existential problems like security and defense, to invest in infrastructure, technology, capital stock, education and health to improve productivity in the country then let it borrow against our natural resources, or the expected revenue growth from economic growth that the investment will bring or the nations external reserves. If it chooses to innovate in taxation on GDP to increase tax revenue, then let it be prepared for a passionate demand for accountability.
And if government convinces the Nigerian people, with a democratic undertaking, that this new US$1Trillion in ten years, will not be used to fatten the politicians but will be invested in infrastructure, health, education, technology, and credit to local entrepreneurs to increase capital stock in just 10 years, I am certain the Nigerian people will gladly pay the taxes, because this is the gift that will keep on giving.
For this reason there is no need for anxiety and panic over empty treasury, for what does an Empty Treasury even mean in Nigeria?
Joshua Gogo (PhD)
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