The Budget office finally released the full transcript of the 2015 Budget speech which is much more comprehensive than the one earlier put up here. Scroll down to the very end of the text below to download or read it.
HIGHLIGHTS OF PROPOSED 2015 BUDGET: LUXURY TAX DETAILS UNVEILED; FOOD PRICES AND INFLATION DOWN DESPITE OIL PRICE DROP; SPECIFIC MEASURES TO REDUCE EXPENDITURE
DIVERSIFICATION IS WORKING; FOOD PRICES ARE STABLE
AND INFLATION IS LOW
We should see these challenging times as times of opportunities to further move this economy on the right path. Luckily, this Administration had taken to diversification seriously and began to make inroads prior to this time. The Non-Oil Sector, whose growth has averaged about 8 percent in the last few years is the primary driver of growth in the economy unlike the Oil Sector which is actually contracting.
Other evidence of this diversification can be seen in the Agriculture sector, where Food Imports declined from N 1.1 trillion ($6.7 billion) in 2009 to N 684 billion ($4.35 billion) in 2013 and continues to decline, according to the National Bureau of Statistics. NBS data on consumer price index for the month of November 2014 also shows that inflation eased for the third consecutive month from 8.1% to 7.9%, as a result of slower rise in food prices. So the efforts of government to boost food production all across the country are paying off.
This year alone, we added 12 million MT of food to our domestic food supply according to Ministry of Agriculture data. These include maize: 6.13 million MT; rice: 3.25 million MT; cassava: 2.12 million MT, amongst others. Despite the naira devaluation, there has been a very marginal increase in food prices due to increased food harvests. Nigerians are not paying more for food despite the devaluation, because agriculture is working. Commodity prices monitored and published by the NOVUS Agro Nigeria Commodity Index buttress this assertion.
For example, the wholesale price for beans in Bodija market Ibadan was 18,500 (100kg) on October 10th 2014 and did not change by December 15th. In Dawanu market in Kano, the wholesale price for maize (white) (100kg) was 5,500 in October 10th and this declined to 4,933 by December 15th. In Mile 12 market in Lagos, the wholesale price for gari (white) (60 kg) was 5,500 in October 10th and increased slightly to 5,643 by December 15th. In Ogbete market in Enugu, the wholesale price for beans, gari (white) and sorghum did not change between October 10th and December 15th, but the wholesale price of gari (white) (100 kg) declined from 6,800 to 3,800. So the prices of foodstuff have remained relatively stable. Even as of this morning, checks in various locations such as the Ugah and Achina markets in Anambra State, and the Central and Station markets in Kaduna showed relative stability in prices.
In general, our recent GDP rebasing exercise shows evidence of a more diversified economy as the services sector now accounts for about 51 percent of the GDP against 26 percent before, while Agriculture and Industry (including the Oil and Gas Sector) which accounted for about 33 percent and 41 percent of GDP under the previous base now account for about 26 percent and 24 percent respectively under the new GDP. It must be said also that this government’s diversification efforts also generated 1.2 million jobs in 2013 out of the 1.8 million new jobs needed each year. In 2014, we have so far generated about 500,000 jobs in the first half of the year.
THE PARAMETERS OF PROPOSED BUDGET 2015
• Oil production remains at 2.2782 million barrels per day;
• Benchmark oil price of $65/barrel;
• GDP growth rate projected at 5.5%;
• An exchange rate of N165 to the US Dollar;
• Non-oil revenue (including non-Federation account) of N1,684.63 billion;
• Fiscal Deficit of N755 billion (or 0.79 percent of GDP); and
• Domestic Borrowing of N570 billion down from N571.9 billion in 2014
Now, the $65pb represents a $13 drop per barrel from the $78pb (i.e., about N142 billion of FGN budget revenue) originally proposed to the National Assembly. To partly make up for this, we have taken steps in this Budget to introduce some short-to-medium term revenue and expenditure measures. Most of these measures are designed to kick-in towards the beginning of second quarter 2015 and will considerably boost the ratio of non-Oil revenues to Oil revenues.
SPECIFIC MEASURES TO INCREASE NON-OIL REVENUES AND HOW MUCH THEY WILL BRING INTO THE TREASURY
Revenue (Non-Oil) Measures
Independently Generated Revenues: Over the last three years, Government has been working to increase its independently generated revenues (IGR) and has in fact, sustained an upward trajectory in IGR receipts. Actual receipts have continued to grow from about N182 billion in 2011 to N274 billion in 2013 and then, N328 billion as of October 2014. While this is encouraging, there are still leakages and incidences of non-remittance of requisite funds to Treasury by some agencies. Mr. President recently summoned a meeting with revenue generating agencies to address this issue, and subsequently issued an unequivocal directive to all revenue agencies to ensure remittance of their obligations to Treasury. With this strong support, we are working with the Banks to ensure strict compliance, and so we have projected IGR receipts of N450 billion for 2015.
Tax Revenues: In the short term, we are determined to improve tax revenues not by increasing tax rates as many have advised, but rather as a pro-people Administration, by strengthening our tax administration. We aim to plug leakages, increase the tax base and improve tax collection efficiency. In this respect, Messrs. McKinsey & Co. was engaged to work with the Federal Inland Revenue Service (FIRS) about a year ago, before the oil price drop, to enable FIRS improve on tax collection. I am pleased to inform you that so far this effort has already yielded additional non-Oil revenue of about N143 billion for Government in 2014. In 2015, we are ramping up the FIRS/McKinsey initiative to contribute an extra N160 billion in tax receipts and an aggregate of about N460 billion over and above the 2014 levels in the 2015-2017 period.
Tax Waivers and exemptions: Analysis shows that about 30 percent of those that received tax waivers from government especially under the pioneer status scheme now abuse the system. As a short-term measure, Government has commenced a review of the implementation of pioneer status exemptions to some oil companies which could unlock up to N36 billion of additional tax revenues in 2015.
• A 10% import surcharge would be imposed on new Private Jets which is estimated to yield about N3.7 billion in 2015; 39% import surcharge on luxury Yachts which is estimated to potentially raise N1.6 billion in 2015; and 5% import surcharge on luxury cars which is estimated to yield about N2.6 billion of additional revenues.
• A surcharge on Business and First Class Tickets on Airlines.
• Others are: the imposition of 3% luxury surcharge on champagnes, wines and spirits to generate about N2.3 billion in 2015; and a 1% FCT Mansion Tax on residential properties with value of N300 million and above which should yield additional N360 million. These surcharges would yield a total of about N10.56 billion in 2015.
In the medium term, it will be important to focus on Tax Policy to see where opportunities lie to streamline and rationalize certain taxes and levies whist looking to boost others. For example, Nigeria has one of the lowest VAT rates in the world and medium term efforts must involve the Legislature to see what opportunities exist with VAT which largely benefits States. Whilst State Governments get 85 percent of VAT, the Federal Government gets just 15 percent. A 5 percent increase in VAT rate for instance would yield N614 billion, most of which would go to the States and Local governments.
I believe that the discipline these new measures impose will go a long way to support the economy and provide Nigeria a responsible pathway to overcoming the limitations of falling oil revenues without disproportionately affecting the poor-to-middle class.
Based on these parameters, the 2015 Budget envisages a net federally collectible revenue of N6.9 trillion. Of this, a total of N3.6 trillion is envisaged to fund the FGN 2015 Budget, representing about 3.4% drop from N3.7 trillion for 2014 Budget. This is with more emphasis on non-oil revenue sources to partly compensate for the shortfall in actual oil revenue.
SPECIFIC MEASURES TO REDUCE EXPENDITURE
AND HOW MUCH THEY WILL CONTRIBUTE
Government is also contemplating short and medium-term measures in expenditure. These focus on cutting non-essential and non-developmental expenditures from the Budget. Some of these measures include:
Deploying IT Systems: In the short term, our strategy to curb recurrent expenditure will increasingly rely on implementing the right technologies such as biometrics and digitizing government payments. It is pleasing to note that we have advanced the deployment of three electronic platforms – namely, the Treasury Single Account (TSA), the Government Integrated Financial Management Information System (GIFMIS) and the Integrated Payroll and Personnel Information System (IPPIS) – which are all geared towards improving efficiency and transparency in our public finances.
Just through the implementation of IPPIS alone, we have saved thus far about N185.4 billion and weeded out 60,450 ghost workers from 359 MDAs and we intend to save even more. We intend to ramp up the work on these platforms in 2015 to improve on our transparency, efficiency and efficiency objectives while saving the much needed resources for reinvestment to benefit all Nigerians.
In the short-term, we are instituting measures aimed at improving spending. This exercise which will save a total of N82.5 billion will include the following:
• Overhead expenditures: We propose cuts to International Travels and Training by 50% for all MDAs saving about N14 billion, while other provisions for Overhead expenditure have been dropped completely – saving about N4 billion.
• Administrative Expenditures for Buildings, Equipment, Supplies, etc: MDAs’ provisions for the procurement of administrative supplies and equipment will be cut, saving about N5 billion; procurement and upgrade of buildings were similarly curtailed saving about N44 billion, while another N76 billion is proposed for reallocation to more impactful programmes of Government in the security, health, and education sectors.
• We have also commenced partial implementation of the Government’s Whitepaper on the rationalization of Agencies based on the Oronsaye Report. We have built-in savings of about N6.5 billion in the 2015 Budget from the rationalization of some agencies, committees, and commissions. Nevertheless, medium term measures require greater efforts to cut the cost of governance across all tiers and branches of government. This requires support from the legislature to amend laws underpinning certain agencies. A list of such laws will be submitted to the National Assembly for consideration by the second quarter of 2015.
A fundamental restructuring of budgets is required at Federal and State levels if fiscal sustainability is to be achieved in the nation’s economy going forward. The high ratio of recurrent to capital spending must be reversed going forward.
The Aggregate Budget
Based on the foregoing, the FGN 2015 Budget has an Aggregate Budget Revenue of N3.602 trillion made up of: oil revenue of N1.918 trillion and non-oil revenues of N1.684 trillion (implying a ratio of 53% oil revenues to 47% non-oil) to fund an Aggregate Budget Expenditure of N4.358 trillion proposed for 2015 Budget, which is about 8% less than in 2014 Appropriation. This expenditure figure is made up of N412 billion for Statutory Transfers, N943 billion for Debt Service, N2,616 billion for Recurrent (Non-Debt) and N634 billion for Capital Expenditure (inclusive of SURE-P).
SUPPORT FOR JOB CREATION YIELDING RESULTS
YouWin: this successful program has nutured over 2,400 young entrepreneurs with 22,000 jobs created in the first two rounds. YouWin 3 is starting to disburse to its 1,500 beneficiaries who are expected to create on average 9 jobs each, and we will continue in 2015 with the implementation of YouWin 4, which will again, identify another 1,500 young entrepreneurs to support. The government also launched a $50 million SME Venture Capital Fund that will help take YouWin beneficiaries and other viable SMEs to the next level, and create even more jobs. The government’s focus on this program despite a tight budget is part of the pro-people efforts of this budget to support our youth.
G-WIN: The Growing Girls and Women Initiative in Nigeria which was launched in 2013 to integrate our women and girls into key sectors of the economy through budgetary initiatives has yielded positive results and generated interest across the board. Specify some results achieved include the training of 2285 young women in ICT; treating 2362 VVF patients and so on. In 2015, we would continue to expand this program. In addition to the original five ministries, the Ministry of Environment has also has now signed an MOU to join GWIN effective in 2015 and discussions are ongoing with other Ministries and the private sector for partnership.
DFI TAKES OFF IN JANUARY 2015
Finally, Ladies and Gentlemen, the government plans to launch in January 2015 the Development Bank of Nigeria (DBN) – a wholesale financial institution that will support our private sector especially SMEs to access more affordable financing with longer tenure. Several Nigerian entrepreneurs still lack access to affordable financing, with medium- to long-term tenors. At least, over twenty thousand entrepreneurs in critical sectors of the economy are targeted to be financed through the DFI in its first full year of operation. We are working with partners such as the World Bank, the Africa Development Bank, the BNDES Bank in Brazil, and KfW in Germany, and have set aside the sum of N4 billion in addition to the N16 Billion provision in the 2014 Budget to realize this project. Our existing Bank of Agriculture and Bank of Industry will be re-structured as specialized institutions to retail financing from this new wholesale development bank.
GDP ESTIMATE FOR 2015
Due to all these efforts, GDP is expected to still grow by a decent 5.5 percent, driven by non-Oil sector growth. This growth is important as it will enable us keep poverty in check. People often criticize our emphasis on GDP growth, saying “na GDP we go chop?” but the truth is that if GDP does not grow, poverty will worsen. GDP growth is therefore necessary but not sufficient for development and we need to bolster our non-oil growth rate.
SOCIAL SAFETY NET
That said, to properly tackle poverty, we have been working for the past 4 months to develop a Social Safety Net with the support of our development partners especially with the World Bank supporting with US$500 million. The Ministry of Planning has already put in place a Social Protection Policy upon which the Safety Net will be based. This program, which will kick off in the latter part of 2015, will aim to reach up to 3 million households (or about 13 million people) within a 10 year period. For the first time in Nigeria, we will have a robust national system for effectively targeting the poorest for social assistance. This program will not only alleviate poverty but will also contribute to socio-economic inclusive through linkages with sectors.
Regarding Social Safety Nets and Inclusion, the challenging security situation in the North East with emergency rule in three States, namely: Yobe, Borno and Adamawa makes the region one of the prime areas for targeting under the new Social Safety Net program under construction. In addition, government has developed three strategic programs to alleviate the suffering of the affected population in the North East.
The full implementation of the Safe Schools Initiative (SSI) will be revved up in 2015 with the transfer of 2400 schoolchildren from high risk areas in the Northeast to other parts of the country, amongst other interventions. The Presidential Initiative for the North East (PINE), aimed at rehabilitating infrastructure as well as helping to restore their livelihoods, has received a boost in its budget from N2 billion to N5 billion, to deliver on its mandate. Also, the Presidential Victims Support Fund will administer palliatives to the victims of recent terrorist activities in the region.