Post Views: 265 In view of the eventual approval of new minimum wages across the country, governments of the 36 states were on Monday enjoined to adop...
In view of the eventual approval of new minimum wages across the country, governments of the 36 states were on Monday enjoined to adopt creative ways of raising internally generated revenue (IGR), while deploying electronic payment solutions and plugging leakages.
In a note published on its website and shared on social media, FBNQuest, the investment banking arm of FBN Holdings Plc, called for a more secure revenue stream by way of taxes and services fees, as a possible solution to the challenge of raising minimum wage to N27,000 by state governments from N18,000.
The note by Gregory Kronsten, head of Macroeconomic & Fixed Income Research, at FBNQuest, urged state governments in Nigeria to “change their ways, (remembering) that the Muhammadu Buhari administration has already given them five separate debt relief packages.”
He recalled also that the two largest of these packages were “one-offs (the conversion of eligible bank borrowings into FGN long bonds and the Paris Club refunds).”
Although the call for wage increase, he continued, is at a time when it is widely known, that state government finances are in a mess, Kronsten pointed to revenue collection efforts by Lagos using online payments. Asset sales by Kaduna State, he said is another.
He stressed that the debt relief only “reduced the mess but were a long way from eliminating it, and the larger ones are not repeatable.”
On the expenditure side, he suggested “the removal of ghost workers and pensioners, the replacement of cash with electronic transactions wherever possible, a greater monitoring of expenses, a firmer management of contracts for public works and services, and the creation of an efficiency unit similar to the body within the Federal Ministry of Finance.”
Monthly handouts by way of the monthly Federation Accounts Allocation Committee (FAAC), he said has proved to be highly undependable, given that while oil price may spike to US$100/b per barrel in three years, it could sink to US$40/b within the period.
If the latter should happen, he warned that “the majority of states would find themselves in an even greater mess,” hence the need to adopt a managerial solutions to the challenge ahead.
While the proposed new minimum wage is yet to be approved by the Senate, the Federal Government has agreed to pay N30,000, Kronsten noted the worry by states, given that their aggregate spending on personnel could significantly rise above the N942bn figure for 2017, which was less than their IGR of N765bn at the time.
He argued that the situation in 2018 may most likely be worse given that “more than half the states were said to be in arrears on their salary and pension payments,” lamenting that the number of better-managed states is relatively small, while “no fewer than 28 of the 37 states (including the federal capital territory) earned less in IGR than they paid out on personnel.”
A political formula, he believes, is for adjustments in revenue distribution between the three tiers of government, subject to constitutional amendment such that states receive more than the current 50% share of the VAT Pool, from 15% for the FGN and 35% for the local governments.
“However, such adjustments would remove the incentive for state governments to overhaul the management of their finances. Their challenge is to increase the size of the cake by their own efforts,” he warned.
It is also possible, he says, for states to launch shared initiatives and projects, a situation, he believes, is “not as far-fetched an idea as it might seem.
A more reasonable solution, he however noted, is the need for state governments to sharpen their management acumen, including doubling VAT rate from 5% with the help of the Federal Government, while growing IGR.
“We have seen suggestions that a rise in VAT could be accompanied by a reduction in companies’ income tax, from which the FGN would be the loser. Not surprisingly, the idea is not popular in Abuja, where a hike in VAT in isolation has been resisted. A higher rate for luxury goods is considered acceptable but not a more general increase. This would give the FGN additional firepower for its capital spending plans, ease the pressure on state government finances and bring Nigeria closer into line with its fellow members of the Economic Community of West African States,” Kronsten argued further.