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Olusanmi Olumide and Farouk Alabi: Fiscal federalism and Nigeria’s prodigal sons

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Olusanmi Olumide and Farouk Alabi: Fiscal federalism and Nigeria’s prodigal sons

By Olusanmi Olumide and Farouk Alabi

At the basic level, fiscal federalism attempts to explain the division of responsibilities among the tiers of government in a federation. It involves the devolution and decentralization of economic powers among different levels of government. The concept was coined by Richard Musgrave, who believed that the federal government should oversee and control the economic affairs from the top and in turn provide finances to the states that are well disposed to the needs of the people.

It explains how resources should be allocated between the central government and governments of the component units. The underlining assumption here is that economic stability, redistribution of income and “interventions” are the responsibilities of the central government, but allocation of resources should be the responsibility of the state and local governments due to their closeness to the people.

Fiscal federalism only thrives on the premise that each arm of government is independent in performing their responsibilities. Sir K C Wheare (1963) explained that “if state authorities, for example, find that the services allotted them are too expensive for them to perform, and if they call upon the federal authority for grants and subsidies to assist them, they are no longer coordinate with the federal government but subordinate to it. Financial subordination makes an end of federalism in fact, no matter how carefully the legal forms may be preserved. It follows therefore that both state and federal authorities in a federation must be given the power in the constitution each to have access to and to control, its own sufficient financial resources. Each must have power to tax and to borrow for the financing of its own services by itself.

The major instrument of fiscal federalism in Nigeria is the ‘revenue-sharing’ concept, in which taxes earned by the federal government are distributed among the state and local governments. This is done via the Revenue Mobilization Allocation and Fiscal Commission (RMAFC). One of the important duties of the RMAFC is “to review from time to time the revenue allocation formula and principles in operation to ensure conformity with changing realities.” In performing its constitutional responsibilities the RMAFC has submitted different proposals to the executive on the need to review the revenue sharing formula in Nigeria (46.63%, 33% and 20.37% in 2003; 47.19%, 31.10% and 15.21% in 2005) among federal, states and local governments respectively.

Why the recommendations of the RMAFC have not been adopted is a question for another day. As it stands, the federal government gets 52.68%, while 36 states and the 774 local governments get 26.72% and 20.60% respectively. Section 4 of the 1999 constitution clearly lists items on the exclusive list, on which only the federal government can act on; concurrent list which contains responsibilities shared by the federal and state governments; and the residual list which is reserved for the state governments.

The composition of the Nigerian state is diverse in resources and advantages. While some are endowed with crude oil, others are endowed with a large mass of arable land. Sharing the proceeds generated by the government has always thrown up intriguing debates. Derivation, Need, and overall national interest have been the basis for sharing national wealth.

Several concerns have been raised regarding the sharing of government revenue. While many are of the opinion that the major providers should enjoy a larger chunk of the money, some believe it should be based on needs of the states. But whichever way, it is paramount that the allocation made to the states should be large enough to cater for the expenses of the state to enable it perform its statutory functions.

Sadly, this has not been the case in Nigeria. Nigerian states are not independent in performing their duties. Sometimes back, the Edo state government had to get the approval of the Nigerian Senate to access a $250 million loan from the World Bank. The autonomy the state government has, to borrow independently has led to further ambiguity in the revenue generation and sharing system.

Musgrave in his explanations made it clear that the federal government, though with the control over other tiers, is not close enough to the people hence the need for independent decisions by the governments at the grassroots level.

Fiscal federalism is not just presenting a case of revenue being shared. It brings to limelight the economic question of WHAT to produce. Given that different localities have different needs and as such can not be satisfied by an assumed solution, the grassroots government can sample the opinion of the people ranking their needs in a scale of priority.

For instance, there are over 140,000 Sq. Km of roads in Nigeria and just a meager 34,000 of these are federal roads. Some states have absolutely little presence of the Federal government. Kebbi state, with a population of over 3 million people, has only one federal medical institution. The bulk of the health services lie in the hands of the state government.

Due to their closeness and proximity to the people, the state and local governments are saddled with the responsibility of providing almost everything even if it’s not within their reach.

With the several advantages it comes with, the suitability of fiscal federalism for the Nigerian body polity is strongly unputdownable. However, with news of mismanagement of funds, outstanding salaries, need for FG bailout and other disheartening economic issues, it can be argued that it has become hard for the government to implement true fiscal federalism. But what becomes the lot of the Nigerian in the midst of all these? Away from the politics of vendetta and the pettiness of political actors, the Ministers of Finance, National Planning and the Technocrats in these ministries must be bold enough to tell the President the true meaning of the positive impact that economic freedom can avail the states if true fiscal federalism is enthroned in Nigeria. The State Governors must stop being the Biblical prodigal sons who rush back to their Father, the Federal Government after bouts of squander-mania. Fiscal responsibility and federalism is key to financial independence and financial independence is key to the future of Nigerian democracy.

But let us take a minute to process that. We know that truth and what is true has never been associated with politics and politicians. Thus, a departure from the norm has become necessary.

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