• Tuesday, May 21, 2024
businessday logo

BusinessDay

Austerity measures: A critique

Oil

Predictably, the continuous fall in oil prices has generated reactions from the Federal Government. The government has specifically put in place a number of austerity measures designed to cushion the harsh effects of the inclement situation.

Such austere measures include a tax on luxury goods like private jets, yachts, alcoholic beverages and expensive cars and a reduction in public expenditures and international travels by public servants. At the same time, the Medium Term Expenditure Framework and the 2015 budget proposals have been revised, while the government has now proposed a benchmark of $73 per barrel, as opposed to the earlier proposal of $78.

Taken together, these measures could be said to reflect that the Jonathan economic team has put on its thinking cap in the wake of this seemingly unsavoury phenomenon. Unfortunately, this is about all that can be said for the government’s response.

As regards the taxation of luxury goods, for instance, our worry is that the measure may not be practicable in these climes. The monied elite in a rentier society like ours have ways and means of getting around what they deem to be inconvenient and cumbersome policies. In any case, it goes without saying that there is a disjuncture between productivity and the ownership of private jets in Nigeria. Such a disjuncture is accompanied by an attitude which is patently hostile to taxation.

It is also possible to fault the spirit behind the measures. According to Finance Minister Ngozi Okonjo-Iweala, the measures are aimed to ensure that the common man does not feel the impact of the falling oil prices. This is really a tall order, if only because despite its messianic zeal, there is really very little the government can do under the circumstances. In a situation of falling oil prices, runaway inflation will invariably take hold. This is because with falling oil prices, the naira will take a beating, as it is happening now. And to this extent, since we import everything that sustains us, a falling naira means the cost of living will continue to go up.

In any case, we may as well say it here that the present austerity measure is in reality ‘a double whammy’ for the majority of our populace. This is in view of the fact that prior to the formal rollout of austerity measures by the Jonathan administration, austerity, even in the rosy days of high oil prices, has been the lot of the average Nigerian. So what will shortly obtain is double austerity or, better still, double jeopardy. Fela, the Afrobeat exponent, poignantly captured what is being said here when he spoke to what he called “dead body get accident”.

Another issue which also boggles the mind is that in the past 15 years or so, when oil prices stayed above the $100 mark, the average citizen did not see much of this oil boom. Rather, what continued to be seen with numbing regularity were the corruption and stinking opulence that characterised the lifestyles of the political elite. On this note, it is instructive to state that what our elected officials at federal, state and local government levels earn (corner) by way of salaries and allowances can be located in stratospheric domains. In other words, if the political class decided to cut its humongous compensation package by, say, just 20 percent, a lot of resources would have been freed for development in the critical area of infrastructure.

At a much more fundamental level, we are worried that even in these dire times, there are no attempts to think outside the box. This becomes obvious given that the current preoccupation of Jonathan and his economic team is still the linkage between oil benchmarks and the budget. This is a knee-jerk reaction which speaks more to reflex rather than reflection. In other words, what the current situation calls for is a reformation of the oil industry itself.

READ ALSO: Lower oil prices create fears of another naira devaluation

At the risk of sounding visceral, over the years, a wayward and irresponsible ruling class has relied on rents from crude oil alone, rather than ensuring backward linkages in this critical industry. If this prudent path of backward linkages had been taken by successive government, including this one, Nigeria would not be a victim of the recurrent upheaval in the international oil market.

Incidentally, our finance minister is well aware of our policy stance here. As a former country director of Malaysia at the World Bank, she is aware of what PETRONAS, the Malaysian oil company, has done in the country’s oil industry. It is time for Nigeria to do away with the short-run personal reliefs which characterise what passes for oil policy. Rather, we should settle for the long-term as wiser oil-producing countries have done.

We are also deeply perturbed that despite the nationwide consequences of falling oil prices, other levels of government, state and local, are yet to come up with policy measures as the Federal Government has done. Given that the impact of this evolving phenomenon will sooner than later reach every nook and cranny of this vast country, we urge the other levels of government to come forth, too, on how they will contend this unfortunate but clearly avoidable situation.