In reaction to President Goodluck Jonathan’s decision to defer the postponement of the 2014 budget until both chambers of the National Assembly are able to reach a consensus on the oil benchmark, the House of Representatives has revealed that it was the progressives across party lines in the House who had insisted on pegging the budget at $79 per barrel.
In a statement issued Tuesday by the House Minority Leader, Hon. Femi Gbajabiamila, the House acknowledged that the executive had agreed to $76.50 with the joint committees of both houses of the National Assembly, even though they (the executive) had wanted it fixed at $74.
“The Senate has passed a $76.50 benchmark (in the MTEF). However, the progressives across party lines in the House insisted on $79 and carried the day on the floor during the debate and consideration of the joint committee report,” he said.
The minority leader also called on his colleagues to immediately stop the operation of the Excess Crude Account (ECA) or any other illegal account, arguing that the time had come to test the constitutionality of the “oil benchmark” in court.
Explaining that members of the House with a progressive bent felt it would be necessary to explain to Nigerians the position they had taken, the minority leader gave statutory reasons why the Medium Term Expenditure Framework, as a three-year rolling plan and not an annual plan or guide to the budget, should not be materially altered.
He said: “It is conceptualised to be the basis for the budget for the next three years and unless there is a major and compelling reason for a change in assumptions and projections in any given year, there cannot and should not be any material change to the MTEF especially within its first year. “Indeed Section 16(2) of the Fiscal Responsibility Act states: ‘Any adjustment to Medium Term Expenditure Framework shall be limited to:
a) The correction of manifest error; and b) Changes in the fiscal indicators, which in the opinion of the president are significant’.”
He recalled that the issue of the benchmark, which perhaps generated the biggest controversy last year at $79 per barrel was eventually agreed to by both chambers of the National Assembly.
“The parameters and assumptions for last year’s $79 have not changed with the price of oil maintained at over $100 per barrel. As a matter of fact, the overall oil and non-oil revenue projections were met and surpassed in spite of the crude theft claimed by government.
“For us, therefore, to suddenly change the benchmark from $79 to $74 or $76.50 as proposed by the executive and the Senate respectively seems whimsical at best.
“What then was the point of a MTEF based on a three-year rolling plan? We might as well scrap the MTEF and just continue with our annual budgeting proposals or change its name to Annual or Twelve-month Expenditure Framework.
“To accept to drop last year’s benchmark by about 4 or 5 dollars when nothing has changed may also suggest that a House that fought and argued passionately for a higher benchmark just a few months ago was unserious, did not understand the issues, and lacked the courage of its conviction.
“It could also suggest underhand dealings as is often the accusation levelled against the National Assembly.”
But in reaction to Gbajabiamila’s argument on the MTEF, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, said the minority leader was wrong, pointing out that the MTEF was not a fixed plan but a rolling plan.
She said: “The MTEF is a rolling plan, which means each year we fix the benchmark using certain parameters in accordance with the circumstances of the time. Besides, there is no country in the world where a parameter such as the benchmark is kept unchanged, and we are today faced with a global fiscal challenge in the form of shale gas being produced by the United States of America.
“Very soon, the US would become a net exporter of oil. In fact, our oil exports to the country have declined, but our saving grace has been India, which has taken up the slack. So it would be disingenuous for anyone to say that just because the price of oil has hovered at around $100 per barrel, it cannot crash.
“Lest we forget, as recently as 2008, oil prices crashed from a peak of $147 per barrel to $35 per barrel in a space of months triggered by the global financial crisis. Is the minority leader saying he has forgotten that?” She asked.
However, Gbajabiamila said that though the progressives felt that the national interest was most important in their decision, “we also represent states in a true federal structure. To this end, we took cognisance of the fact that a lower benchmark necessarily in the way the federal government operates our revenue, means less money to the states and more money to the federal government. How?
“When you fix a benchmark at, for instance, $74, it means all oil revenue above $74 is transferred to some phantom Excess Crude Account (ECA). So if, for instance, oil sells at $100 (which it has in the last five years or more), the remainder $26 is transferred to the excess crude account purportedly for savings and to be shared amongst the three tiers of government at a later date.
“It is pertinent to note that for months now, the states, as usual, have gone cap in hand to the federal government to ask for their share of the excess crude oil and across party lines have cried out that the federal government has either refused and neglected to pay them or short changed them somehow.
“Now, if the federal government was unable to pay states from a higher benchmark of $79 last year, how do they intend to do it with a smaller intake at $76.50. Surely, at that point, the states will become comatose. States have continued to complain of difficulty in paying their bills on a regular basis due to this impoundment of their monies by the federal government.
“More alarming is the revelation just recently by the governors that $5 billion dollars has recently disappeared from the Excess Crude Account.
“The House felt it would amount to negligence and possible malpractice knowing the consequence of a lower benchmark to the states they represent to sit down and short change the states for the benefit of the federal government without any compelling argument to do so.”
The minority leader pointed out that the ECA is an “illegal and unconstitutional account” going by the provisions of Section 162 of the constitution, noting that the federal government and proponents of a lower benchmark have argued amongst other things about the volatility of oil prices.
“Unfortunately, each year this argument is made and each year the argument is negated as the oil price continues every year to stay above $100.
“Let’s assume for the purpose of argument it actually drops. Even in a cascading free fall drop to $85, which is unlikely, we will still be way above our revenue projection of $79.
“Now, if in the unlikely event that the oil price, in an unprecedented fashion, falls to a ridiculous all-time low of say 60, 65, 70 dollars or whatever figure, we have legislative mechanisms and processes called the amendment bill which can be used to adjust to the reality of the time.
“Even without an amendment bill there are inherent procedures and clauses in such money bills like impoundment and virement that can be triggered by such an event.
“So why then should anyone be such a harbinger of bad news and fear monger to suggest that this nation will collapse should the unthinkable happen and the price of oil drops from say $100 to $60.
“Surely, if there is a possibility that oil prices should drop so far down, then why fix it at $76.50 instead of $79. Why not $40 or $50? If it can drop to $79 what stops it from dropping to below what the senate or federal government is advocating and what happens in such an event?” he demanded to know.
He dismissed the argument that the continued crude theft was another reason why the benchmark must be set lower, stating that is appears to stand logic on its head.
“It appears on the contrary that having lower production or less oil to sell because of theft is the very reason we must increase our benchmark so as to make up for the loss and meet our revenue projections. Very simple!
“However the federal government and ministry of finance would have us believe in its fuzzy maths and voodoo economics that the theft of crude should mean a lower benchmark.
“Many of us have always cringed at the thought of having the poor masses pay for the negligence, complicity or failure of the federal government – the same reason why we opposed the removal of subsidy.
“Let the federal government play its role as provided in the constitution (that the welfare of the citizenry shall be the primary purpose of government) and secure our oil and most priced commodity from theft, instead of letting the masses pay for its ineptitude,” he said.
Gbajabiamila added that the House has continued to protest the consistent non-implementation of budgets, but the federal government had continued to blame their non-implementation, which is termed an illegality, on shortfalls in revenue.
According to him, “Therefore by the government’s own inadvertent admission, there is a correlation between the benchmark, which is what is used to finance the budget and budget performance.
“Common sense therefore dictates that a lower benchmark would mean lower budget performance. If you can only implement budget 40 percent when the benchmark is at a higher $79, it goes without saying that at $74 or $76.50, we should expect, if lucky, a 25 percent budget implementation and performance.”
He further pointed out that the budget deficit and borrowing was another reason why the progressives in the House had insisted on retaining benchmark of $79.
“It is trite that once you deliberately lower your benchmark and therefore your revenue, you set yourself up for a budget deficit. It becomes imperative therefore to go to the market to borrow for the purpose of financing the budget.
“When this happens, not only do you commit the country to more debt at a high interest rate, the burden of which is passed on to future generations we purport to save for through the Sovereign Wealth Fund, we also make it impossible for the real economy to grow as small businesses cannot compete with the federal government who would invariably mop up available funds for borrowing,” he stated.
Continuing, the House minority leaders said based on the MTEF presented this year and due to what the executive’s claim that there was a drop in oil revenue this year, next year’s budget supposedly has dropped its capital component by a significant 10 percent from about 35 percent of the budget in 2013 to 25 percent in 2014.
“This is in spite of Mr. President and Madam Minister of Finance’s assurances that capital component will continue to rise every year. In his budget presentation to the National Assembly last year, he told the whole country and I quote: ‘Here in Nigeria we do not join the debate on fiscal consolidation versus growth because we believe in the need to do both… the share of capital expenditure in the total budget is increasing as we gradually reduce recurrent expenditure.’
“He went on to say: ‘Government is determined to reduce the cost of governance. We are reviewing the recommendations aimed at rationalising agencies of the federal government with overlapping functions… more significant steps will be made in 2014.’
“Finally he said on the budget structure and I quote: ‘In recent years, recurrent expenditure has tended to crowd out capital expenditure in the national budget. Over the 2013-2015 medium term, my administration will continue to implement measures aimed at correcting this imbalance in the budget structure in a viable and sustainable manner… the process for rationalising public agencies and reducing duplication of mandates among different government agencies has begun, following the report of the Oronsanye committee’.”
Gbajabiamila, however, noted that contrary to the president’s presentation, the recurrent expenditure component in the 2014 budget had risen by about the same 10 percent from 63 percent in 2013 to 73 percent in 2014, an increase of about N14 billion.
“Yet the so-called revenue shortage projection, which government claims is reason for the reduction in capital expenditure, has not reduced the recurrent expenditure but instead increased it, thereby rubbishing in some way the Oransanye report and the clamour by many for the reduction in the size of government. Talk about getting our priorities wrong.
“This is in spite of a bill titled, the Economic Stimulus Bill which I sponsored and which though not law yet, has passed the second reading in the House.
“The bill mandates that at lease 40 percent of the country’s budget must be allocated to capital expenditure for the next five years. The intention is to achieve some sense of trickle down economics, so the common man can enjoy the so-called dividends of democracy through the infusion of capital projects to stimulate the economy and increase employment,” he said.
He said some members in the House, therefore, felt that lowering the benchmark would defeat this objective, as blaming the sharp decline in capital expenditure, and on the other hand, an increase in recurrent expenditure on revenue shortage projections and not the reduction in benchmark was definitely a poor attempt by the handlers of the economy to be clever by half and hoodwink the masses.
“Unfortunately some of us saw through this insidious move,” he said.
He further alleged that many House members, rightly or wrongly, read political undertones to the fixing of a lower benchmark without any compelling reason, adding, “Simply put, 2014 is more or less an election year.”
He said that to shortchange the states and starve them of funds in an election year was suspicious and disingenuous.
The minority leader added: “It must be remembered that the Excess Crude Account remains in the custody and absolute control of the federal government and it appears it is at liberty whether or not to distribute same to the states and local governments.
“Therefore lowering the benchmark would generate less revenue into the Federation Account and therefore less revenue to be shared to the states and local governments.
“It would on the other hand increase what goes into the Excess Crude Account, which is intended to be distributed to the states, an intention which the federal government only pays lip service to.
“Invariably therefore, the states are short changed whilst the federal government is empowered, all of this in an election year. At the end, only the states belonging to the ruling party would benefit from its largesse. Hmmmm!!”
He concluded his statement by drawing attention to the constitutionality of setting a benchmark in the first place, noting that whether or not other countries do it was irrelevant.
“Perhaps their constitution allows it. If we are desirous of benchmarks, there is a need to amend the constitution. Now, if the federal government must set a benchmark for the purposes of budgeting, it can only do so on its own share from the federal account and not on the whole of the revenue of the federation.
“The constitution, in line with the principles of federalism, particularly fiscal federalism states clearly in section 162 (1): ‘The federation shall maintain a special account to be called the Federation Account into which shall be paid ALL REVENUES (emphasis mine) collected by the Government of the Federation…’
“Section 162 (3) further states: ‘Any amount standing to the credit of the Federation Account shall be distributed among the federal and state governments and the local government council in each state on such terms and in such manner as may be prescribed by the National Assembly.’
“The section provides that ALL REVENUES and not some revenues (which is what the keeping of part of the oil revenue in another account does) should be paid into the Federation Account for distribution of to all tiers of government.”
He argued that what this means is that the federal government cannot take part of the revenue of the country as its own to be distributed to states as and when it wishes or spend for itself through the instrumentality of an “illegal Excess Crude Account”, terming it an unconstitutional appropriation.
“There are only two accounts known to our constitution, the Federation Account and the Consolidated Revenue Account. Though the constitution in Section 162 also permits the operation of any other account permitted by an Act of the National Assembly, the National Assembly did not at anytime enact a statute to create the Excess Crude Account.
“Indeed, as an institution, we have wittingly or unwittingly condoned an illegality. We must not perpetuate it and call on our colleagues to immediately stop the operation of this or any other illegal account. Indeed the time has come to test the constitutionality of the ‘benchmark’ in court.
“If the debate on benchmark must go on, then it should be done with both or all sides being armed with the facts,” he argued.
Meanwhile, Okonjo-Iweala, has said the federal government is unable to reduce recurrent expenditure in the 2014 budget because of the minimum wage increase agreement the previous administration entered into with labour.
The minister, who made this known at the ongoing FBN Capital Limited investors’ forum in Lagos yesterday, stressed that this was in spite of government’s ability to save over $1 billion by plugging leakages that were fuelling recurrent expenditure.
According to her, “We have been able to save a lot by employing technology to fish out ghost workers. But we still have a huge recurrent expenditure because the agreement over minimum wage increase alone raised government spending by N800 billion.
“The Oransaye report that recommended the merger of some ministries and parastatals did not meet its objective because some of the organisations recommended for merger were established by law and requires the National Assembly to repeal the laws before they could be scrapped.
“However, we have also made huge gains from reduction in subsidy payment, which has gone down to a little above N1 trillion.”
Okonjo-Iweala, who spoke via a video link, also stated that contrary to speculations, the federal government’s strict fiscal discipline was not as a result of revenue shortfalls but a deliberate policy aimed at saving for investment in infrastructure.
She disclosed that the federal government was not entirely happy with the growth of the economy because of income inequalities in the country.
According to her, “Despite the massive growth, there is growing inequality in the country. This is why the government of President Jonathan is doing everything possible to invest in the economy that creates jobs the most. That was why we devoted a lot of time to the development of the agricultural sector.
“Another area we have identified is the housing sector and very soon we are going to launch the Mortgage Refinancing Company (MRC) to provide the needed funds to transform the housing sector and create jobs.”
While admitting that the rebasing of the country’s gross domestic products (GDP) will see Nigeria overtake South Africa as the biggest economy on the African continent, she stated that the objective of the rebasing was not about size but to capture sectors in the economy that are currently left out.
While commending the present administration’s transformation agenda, she stated that the economy needed to grow at 10 per cent annually to make inroads in poverty alleviation.