Nigerian Public Finance And Fiscal Policy
Public finance is that section of economics, which examines the income and the expenditure of the public sector of a capitalist or a mixed economic system in that light, the sources of government and local government revenue are examined, while the ends (expenditure) to which they are put are critically examined to see how changes in the pattern of expenditure and the sources of revenue affects the economy. Government normally adopt two types of policy (monetary and fiscal) in an attempt to regulate the functioning of a capitalist economy.
Fiscal Policy
Fiscal policy is said to be the actions of the government aimed at controlling the economy using taxation (both direct and indirect) structures. Taxation is a virile tool of economics modification because of its all pervading effects on the facets of the economy. It also includes governmental measures used to plan government revenue and expenditure, its budget administration (surplus or deficit) tariff system etc. Fiscal policy equally refers to the government’s power to use taxes as a means of regulating and controlling economic activities within the nation.
Monetary Policy
While policy refers to actions taken by the monetary authority with view to controlling the volume, cost and direction of money and credit to achieve some specific balance or on a specified macro economic objective. These objectives includes, price stability, rapid economic development and a healthy balance of payments position.
In developing countries like the federal republic of Nigeria, monetary policy is regarded as a tool for pushing backward economics from their present sorry state to one of sustained economic growth and development. The monetary system is therefore seen as one with a package of instruments for translating development policy objectives into practice. Monetary policy or fiscal policy is therefore said to be effective of it achieves its aims or objectives.
This implies it is a means to an end rather than an end in itself. The end in this case is rapid economic development and hence an increase in the standard of living. Since it is not an end and goal, which the policy makers set at the beginning. From the foregoing it becomes necessary to appraise Nigeria’s fiscal policies since independent in the year (1960) with a view to finding out their contributions and role in the development efforts of the nation.
The Sources Of Government Revenue (Public Finance)
There many government bodies that get the bulk of their revenue from taxes levied in the country. Such taxes may be of the direct type or the indirect type. Apart from them, licenses are obtained by users of particular goods like motor cars for which they pay money. In countries with public corporations or where the government participates in joint ventures with foreign firms, the government earns revenue from profits made by the corporations.
Royalty paid by mining firms in countries with abundant mineral resources which are being exploited, constitute a large source of government revenue. Court fines, fees and tolls paid on the set of certain bridges and roads also provide the state with additional revenue. In recent times many government have encouraged the establishment of national social insurance scheme (Provident fund).
The contributions made by the workers are not rapid the very year. Such money, which may amount to huge sums, becomes revenue to the government. Many countries including Nigeria borrow from individuals and financial institutions in the country in addition to large sums of money from foreign financial institutions and supposedly world financial organizations.
Some of the governments receives grants or aid from foreign countries, especially from their former colonial maters. such grants may help the government tremendously depending on the use to which the money is put. Why does the government need money? The government needs money because certain needs of society can only be provided on a collective basis. To provide police protection, national defense etc. The government spends huge sums of money as in public Finance.
Consequently, the government has to raise revenue from sources listed above for such expenditure. Many less industrialized countries are faced with acute shortage of funds for investment. The government has to secure the funds because the teeming population has get jobs to be sure of basic necessities. Thus in central and West African countries the government provide financial assistance to industry and agriculture.
In some cases, the government establishes the industries or agricultural farms directly. The public sector has also been growing at an alarming rate. This is understandable in the less industrialized countries because there are few private firms capable of absorbing the growing numbers of school leavers. In an attempt to ensure that erring economy is expanding, many government departments have been established. The rise in the number of government employees has therefore meant an increase in public expenditure or Public Finance, which must be met from government revenue.
The social needs of society cannot be completely met by private firms. In many capitalist countries, there are private firms providing education, medical care etc. However, their contribution is insignificant and as such the government must ensure that many of the citizens enjoy the amenities. Apart from such services, there are other areas such as environmental pollution.
This is normally taken care of by the government on behalf of the society. Some government need the revenue as a means of redistributing incomes. In many of the countries practicing capitalism or its mild form the mixed economy system, there is a wide disparity in income distributions. Consequently, the government taxes companies and the rich to provide the poor in society with basic needs.
The Budget
The budget is a financial estimate of expected government revenue and the expenditure the same government hopes to incur in a given financial year. The ministry of finance prepares the proposals contained in the budget, just like we write business proposals. The budget speech is then made by the Head of the state when he presents the proposals to the national House of Assembly. While governors propose to the Head of House o Assembly, this is usually done at the beginning of a financial year since the government may not spend money without the approval of House Of Assembly or National Assembly.
The budget is said to be a surplus if expected government revenue exceeds expected expenditure. It is a balanced budget when expected revenue and expenditure are the same. A budget may be in deficit if the expected government revenue is smaller than the expected government expenditure. Apart from the above, there are other terms associated with budgets. It is important to have a clear of what they mean or else it would be difficult to understand the published budget figures;
a) Recurrent Revenue – This is the revenue the government receives every year. Such revenue comes from taxes fines etc.
b) Recurrent expenditure is that expenditure which must be met by the government from year to year. This is because institutions established by the government must be maintained and the workers managing them must be paid. Apart from that the government repays the debts she incurred in the course of developing the institutions.
c) Capital Receipts shows the sources of government revenue raised through loans from internal sources and grants in aid from foreign sources or from government from international organizations. The capital receipts may also be called development revenue.
d) Capital expenditures indicate the amount of money to be spent on the capital profits the government intends to establish during the financial year. Such money is spent on construction projects like roads, hospitals, schools, stadiums etc.