“The principle is that those who are better off in society, and I hope they don’t mind, will be willing to share a bit more in remitting a bit more to the treasury than they normally do on those things.” Minister of Finance, November, 16, 2014.
Hiding behind a finger is a great deal more sensible than what that statement portrays. Read it again, and what comes through is a government which is reluctant,
indeed, almost begging, to introduce more stringent progressive tax — even when every economist in the world knows that it is inevitable.
Irrespective of whether, they mind or not, the rich have to first of all pay. Then they have to pay more. In fact, what “they normally pay”, to use the Minister’s words, is frequently peanuts compared to what they should pay. Tax evasion is more common among the rich than among the poor.
I discovered that in 1981 when one of the UPN governors came to Lagos for a party meeting and he stopped by in my late brother’s house. My late brother was, at the time, the Commissioner for Justice and Attorney-General for Lagos State, under Governor Jakande. He was lamenting his inability to fund adequately the free education policy of the state government and wandered how he could get more funds. I asked him if he was willing to demonstrate the will to obtain more funds for his programmes. He said yes. Then, I asked him to look at taxes paid by the rich compared with what they should be paying – starting with the richest five people in the state. When he protested that “They are very powerful”, I told him he was not prepared to succeed as a governor. The Minister of Finance will establish her government’s credibility when they are able to look Dangote, Otedola, Arthur Eze, Danjuma etc, in the face and dictate, instead of negotiating how much more they should pay and ensure they pay it. Everybody else will be easy to discipline thereafter.
But, because the Minister is insincere and hesitant about the bold steps to take, the real burden of the austerity measures will fall on the middle class and the lower class. More of the middle class will sink to low class and more of the low class will join those now living in poverty. It is inevitable and here is why.
STAGFLATION IS UNAVOIDABLE.
Stagflation, which was a term coined from two economic phenomena, stagnation and inflation, occurs when GDP growth is declining and at the same time prices are going through the roof. With the price of crude going down and likely to stay down for some time, government spending will be slashed nationwide and people in those states which are heavily dependent on state governments will have less to spend. Meanwhile, the fall of crude will force currency devaluation and that will bring about inflation as prices of goods and services go up. Contrary to the impression left by the Minister of Finance, retrenchment is certain, at federal, state and local governments and the private sector.
The one saving grace, abundant food supplies, this year, will be counter-balanced by the fact that food might be cheaper next year but only those with money will benefit from the bonanza. Even that windfall will not extend to foods with high import content like pasta and noodles, sardines and imported processed foods.
Also unmentioned is the fact that with dwindling foreign exchange earnings, and with our debt obligations remaining the same, or rising, a greater percentage of our revenue will go towards debt servicing – unless we plan on debt default; which will lower our credit rating. Lower credit rating in turn means we pay higher interest rates for loans sourced from abroad. Domestic debt obligations will also claim a larger share of the income – unless, again, we plan to become dead beats to local creditors. Then, they will have to stop providing credit cover.
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