Friday 16 August 2013

THE ADMINISTRATION OF FISCAL POLICY AND ATTAINMENT OF LOCAL GOVERNMENT OBJECTIVES


CHAPTER ONE
INTRODUCTION
1.1         Background to the study  
Primarily, federalism presupposes that the national and states/regional governments should stand to each other in a relation of meaningful autonomy resting upon a balance division of powers and resources. Each state or region must have power and resources sufficient to support the structure of a functioning government, able to stand and compete on its own against the other. It is in a sense, the system of transfer payments or grants by which a federal government shares its revenues with lower levels of power to enforce national rules and standards. In other types of political structure it is known as intergovernmental fiscal relations. Sometimes, both terms are used interchangeably.
       Conceptually, fiscal operations of any economy can be viewed from two extreme forms of public sector. On one hand, there exists a highly decentralized fiscal structure/system in which the government at the centre has no economic responsibilities. The other tiers of government perform virtually all economic functions. The other extreme is case of total centralization where the central government takes total responsibility for economic activities of the public sector and therefore no tiers of government participates in the economic life of the nation. In practice, there exist some degrees of decentralization in all economics. Decentralization here refers to the portion of total revenue collected and expenditures allocated to both state and local governments. The degree of decentralization is the extent of independent decision-making by the various arms of the government in the provision of social and economic services. It connotes the degree of autonomy of state and local government in carrying out various economic tasks.
       Nigeria has operated the three-tier structure of government for many years. The determination of appropriate fiscal jurisdiction and inter-tier distribution of the nation’s revenue within the existing structure has witnessed considerable controversy and conflict, which remains unresolved till date. Nigeria’s fiscal policy system is exceptional in its degree of centralization of power and access to the resources and wealth of the nation. As rightly observed by Philips (1997), the fiscal policy/system tends to be synonymous with that of a unitary government where inter-tier revenue allocation follows a unidirectional process from top to bottom. The system is beset with widespread imbalance both vertically and horizontally. In a federation, vertical fiscal imbalance refers to the mismatch between revenue means and expenditure need at various levels.
       Till date, fiscal operations in Nigeria have tended to undermine the autonomy of lower tiers of government and have adversely affected the attainment of their objective. For instance, in view of the erosion of fiscal autonomy at the state level, it has now become a herculean task for many state to pay their workers as and when due. And the much expected improvement in economic and physical developments remains elusive. Many states have abandoned their hope of financing the development projects to the Petroleum (Special) Trust Fund (PTF) and Federal Road maintenance Agency (FERMA), which in the last few years have assumed a central position in providing physical, social and institutional infrastructure as well as several other services in virtually all sectors of the Nigerian economy.
       At this level, the pertinent question to asker here is: why should state government go through this indirect way to seek fund which they ought to legitimately and directly obtain from the federation account? The proliferation of special funds is diversionary, political motivated and detracts from the capability of government to perform its responsibilities within existing administrative structure. Through this revenue allocation procedure, the federal government has widened the scope of its activities by getting involved in the provision of virtually everything. Despite this level of involvement, there seems to be a very low level of federal government presence even at the grassroots level. Lower tiers of government consider such involvement as a usurpation of power, and the people seem to have derived little direct benefit from it. There is a general feeling that resources are being distributed inequitably within the federation and the impact of fiscal federalism is far from being fully satisfactory (Antai, 1999).
With the current situation there is risk that Nigeria may not continue as quasi-federal country, but as a complete federal state with the full autonomy for the regions. According to Wheare (1946) “Federal Government is an association of states, which has been formed for certain common purposes, but in which the member states retain a large measure of their original independence.” Under the current federal government in Nigeria, all power is centralized, and the states or regions do not have any control over their resources. This problem has been provoked by a number of factors, including ‘over dependence’ on statutory allocations from both the state and federal governments, deliberate tax evasion by the local citizenry, creation of non-viable local government areas, differences in the status of local government in terms of the rural-urban dimension, and inadequate revenue and restricted fiscal jurisdiction.
       Nigeria’s economic development, apolitical stability, security and peace depend on extending the freedom, benefits and choice of autonomy to each ethnic nationality within the country. For the financially healthy and function must be allocated in accordance with their taxing power and ability to generate funds internally. The constitutional provision that recognises local government’s power in this regard must give them full freedom to operate and this must be well guaranteed and adequately protected. These measure, coupled with a review of the revenue sharing formula, the granting of fiscal autonomy and fiscal discipline as well as making local governments free from the strengthened by the 1999 constitution. Stressing these points and the appropriate strategy to be adopted form the focus of this project.       
1.2          Statement of problem
Our daily observation and experience show that though the local government system was made to


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