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.
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