Buhari’s fiscal policy and the poor

It is no coincidence that some of the outstanding economic books of the last five years have been on inequality – as the world get richer, there is an increasing widening gap between the rich and the poor. Three of such books are the phenomenal “Capital in the 21^st Century” written by the French economist Thomas Piketty, “The Price of Inequality” by Joseph Stiglitz, and “Unequal Gains” by Peter Lindert and Jeffrey Williamson, all written from the perspective of growing inequality in the developed world.

But the issue should be of greater importance here in Nigeria because absolute poverty is still a major issue. While absolute poverty, by whatever measures, has fallen dramatically in the last decade in response to the six percent average growth rate, there are still a sizeable number than can described as chronically poor. These are the poor of the poorest and they are extremely vulnerable.

Now, President Buhari wants to cater for this people, and has set aside an estimated N500 billion for the purpose in the 2016 budget. Let us now examine the issues.

First, the plan in the budget is not new. It is an extension of the safety net programme started during President Jonathan’s administration. The Youth employment and social support operation (YESSO) was designed to target the poor and vulnerable. Eight states (Bauchi, Cross River, Ekiti, Kwara, Niger, Osun, Oyo, and Kogi) benefited from the pilot programme (The pilot programme was based on the number of states that provided counterpart funding). By the end of the pilot programme, 30 communities in 6 LGAs each in the states and about 36 thousand families have benefitted.

Second, though not new, the present plan is unprecedented in scale. I understand the programme, now christened National Social Safety Net Programme (NASSP), which has established a National Social Safety Nets Coordinating Office (NASSCO) in the Vice President’s Office is targeting 2.5 million people by the end of this year. No doubt, this will ensure that more poor people are taking care of. This policy is not an unemployment allowance, as some have suggested. Rather, it is an “income support” with both unconditional and conditional elements. The widely publicised N5000 monthly income support is the unconditional element, whereas the support that is provided by the states, given its own peculiarities, is the conditional element.

In principle therefore, I support this programme, and I have no doubt, from what I know and the organisations involved, about the integrity of the process. But there are other dimensions:

First, there are three major types of inequality – wealth, income, and opportunities. If you prefer the poverty interpretation, there are three major types as well – wealth poverty, income poverty and poverty of opportunities. So, which should we treat first? Oh yes, I know they are interrelated, there are interplay between them, and there is migration between them. Nonetheless, a country with a very sizeable level of poverty, estimated at 30 – 40 % of population (no latest reliable data yet), unemployment at 10.4 %, growing 2.11%, according to the latest data, should ask if the focus should not be on expanding opportunities and not income transfer. This is even more important because no matter how extensive the programme is, some poor people will still be discriminated against, in the sense that some will not benefit.

Second, depending on the nature of growth, there can be worsening inequality and or relative poverty. This arises because there are unequal gains in growth. While per capita income may be rising, not everyone’s income grows at the same rate. It becomes a critical economic issue when this growth in inequality is so diverged and, inequality often becomes important because of unequal gains in the growth. So, inclusive growth is important.

However, while I do not believe that inequality should be slaughtered at the altar of growth, it (growth) is a prerequisite for income distribution. Any economic policy that thus put income distribution ahead of growth in a poor country struggling for growth is double jeopardy, because it has implications for lowering future growth, and thus the ability for future income distribution. Look at it this way: We already have petroleum subsidies, which by the way its not in the budget but been applied anyway (contrary to law and contrary to what is expected of a government of Change), which, depending on oil price, could amount to a Trillion naira this year, and then add N500 billion for poor, we could have about N1.5 trillion expenditure for which their impact on present and Nigeria’s future growth is at best minimal, and at worst, non-existent. Just in case you are wondering, this is not how rich countries became rich. As argued by Lindert and Williamson, “direct transfer ….would guarantee a minimum income… However, probably would reduce work effort, investment, risk taking, and hence GDP”.

I hate to say this. Perhaps unknown to most of us, Nigerians, following from our different forms of affiliations (e. g. Christians/Muslims; North/South etc), have a dynamic sense of entitlement. It is the underlying reason why we prefer consumption to investment, and it is the main reason why corruption thrives. It is also the reason why we continue to expand the state and its structures. Despite good intentions and the integrity of the processes, I wonder how we always find a way to dilute the system and change the original intention.

Don’t tell me not to be pessimistic – we have pursued fuel subsidy for many years now, but it was initially meant to help the poor. We established the police, but we now have uncountable agencies doing related and similar duties. Thankfully we have privatized the power industry but it took many years of darkness for us to come to our senses. Ask that the water industry be privatized and hear Nigerians, and tell Nigerians that even the rich countries pay for their higher education, and I bet Nigerians will curse you. After all, our universities are in the top 100,000 in the world. We have an unbelievable sense of entitlement, but ask how much taxes have their parents paid in the last five years, you will hear the shout ooooiiii.

Now, assume it all goes well. I have no doubt in my mind that this figure will have to rise either to avoid redefining the poor and vulnerable, discrimination, and or cutting the value of what goes to this category of poor people. It thus mean that, within a very short period of time, we will realise this policy is not yet sustainable. I thank you.

Ogho Okiti