A new revenue allocation formula? First things first
Here is a new buzz in town you would do well not to ignore. The chairman of the Revenue Mobilisation and Fiscal Commission, Elias Mbam, recently hinted that the commission would begin the process towards reviewing the current revenue allocation formula. The last time the commission did that was in 2013 but its 2014 report lies gathering dust on the shelves where such files spend their unproductive lives.
Mbam’s announcement generated a buzz because we are quick to presume that any such tinkering with the current formula would mean a new sharing formula more favourable to the states and the local governments. More money to the two tiers of government would actually be a very good thing. But it would also mean less money in the federal treasury. That, actually, is where the problems lie. The Federal Government has been in the bad habit of grabbing more power and, therefore, more money to service those powers in the exclusive legislative list. A quick look at the exclusive legislative list from 1960 would show how the Federal Government has progressively accumulated more powers and helped itself to more money from our common treasury.
The last time the revenue sharing formula was reviewed was in 2003 under Obasanjo’s watch. That review is the current sharing formula. Under it, the Federal Government takes 52.68 per cent; the states take 26.72 per cent and the local governments make do with 20.60 per cent. Thirteen per cent is allocated to derivation. The Federal Government thus takes the lion share because it has managed, quite remarkably, to saddle itself with functions best left to the other two tiers of government. Arguments about the unfairness of this sharing formula have a long history but they have never moved the hills, let alone the mountain. That, I think, should advise cautious optimism in what the commission is about to do. It is not, to be sure, embarking on a revolution. Any hopes that the Federal Government would suddenly be persuaded to take less and give more to the states and local governments, would be unrealistic, barring a miracle.
The revenue commission is constitutionally empowered to, as political and economic circumstances demand, to review the revenue sharing formula to make it, presumably, more equitable in line with the statutory responsibilities of each tier of government. As Part I of the Third Schedule to the constitution (paragraph 32 (b) puts it, the commission is authorised “to review, from time to time, the revenue allocation formula and principles in operation to ensure conformity with changing realities….” The constitution sets a time limit of five years for the review of the formula. So, the current formula is already constitutionally outdated.
When its work is done, the national assembly shall determine the proposal from the commission and in doing so, “take into account, the allocation principles, especially those of population, equality of states, internal revenue generation, landmass, terrain as well as population density provided that the principle of derivation shall be constantly reflected in any approved formula…”
The revenue sharing formula from the federation account has always faced at least two fundamental problems. One, it is hire wire politics. Politics tends to becloud clear-heeded reasoning. The problem here has to do with three sharing principles, namely, population, landmass and the number of local government areas. Each of these presents incendiary political arguments wrapped in emotion. We are not usually current with our national population census. Each state is allowed to estimate a higher population for itself and demand that this be taken into consideration in its share from the federation account.
There was immediate scramble by the states to create more local government areas as soon as the generals marched out and the civilians walked in in 1999. The scramble had nothing to do with good governance and grass roots development. It had to do with the politics of benefitting from the number of local governments a state has. Had President Obasanjo not put his foot down, we probably would have more than three times the current 774 local government areas by now. In the end, the uncompleted process has placed a crushing burden on those states and many of them are buckling under the weight.
Two, none of our revenue allocation formula has so far been based on the fundamental principles of federalism, to wit, the level of responsibilities the constitution assigns to each tier of government. This is where any reviews of the existing revenue allocation formula should begin, if we are making a success of the three tiers of government feeding from the same trough. The sharing principles as they are, cannot ensure fairness in the allocation of the funds. Therefore, in attempting a review of the current formula, we must begin where it matters most – the administrative restructuring of the country.
I know this would not be music to the ears that matter but this is not about sweet music; it is about what is right for the country. If we do not do this, a fair and equitable revenue allocation formula would continue to elude us. Whatever sharing formula the commission arrives at would, at best, be based on sentiments and would generate even more emotional arguments. The Federal Government, as it is, is comfortable with the current formula that puts more money in its pockets. The implementation of any new sharing formula arrived at lies in the hands of that first tier of government. There, you have hurdle.
We are averse to national conversations in addressing or resolving our national problems, hence we continue to run in circles. Those who are opposed to such national conversations must realise that it is the only way to go if we must end this vicious circle of trying to move forward with all the encumbrances of unitary federalism. No nation can afford not to talk to itself. Democracy promises and delivers on pluralism. It gives birth to divergent views and voices and promotes mutual understanding and the appreciation of one another’s position.
A comprehensive administrative restructuring of the country is imperative. We can begin that process by reviewing both the exclusive and the concurrent legislative lists and determine which of the three tiers of government is best placed to carry out the various national functions in pursuit of equity and good governance and allocate enough funds to the tier to enable it discharge those functions. Once this is done, we could then devise new principles and work out the new criteria for equitable revenue allocation formula. If we do not do this, whatever new sharing formula is proposed by the revenue commission would amount to no more than a) an attempt, honest to be sure, to full its constitutional mandate and b) mere cosmetic changes that might please some but solve none of the fundamental problems inherent in the nature of our federalism. We need something more radical than that to lift us out of the administrative rut in the nature of our federalism.
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