By Jeph Ajobaju, Chief Copy Editor
Aggressive taxation will form the backbone of this year’s N1.16 trillion budget of Lagos State, where nearly everyone and everything, including petty traders are already being taxed, raising the cost of living high in Africa’s fifth-largest economy.
Coronavirus disruptions hamstrung expectations for 2020. A proposed budget of N1.169 trillion was slashed 21 per cent to N920.5 billion – but stilled attained 86 per cent performance.
In 2020, total revenue was 93 per cent of projections despite the pandemic, #EndSARS protests, and other disruptions – because, as Economic Planning & Budget Commissioner, Sam Egube, put it, “excuses build bridges to nowhere.”
Nairametrics noted that the N1.16 trillion 2021 budget is audacious, considering the revisions made to last year’s projections.
The budget prioritises completion of all on-going projects and then to create jobs, invest in education and healthcare, and deploy technology in public services, among others.
Funding the budget
The N1.16 trillion budget is expected to be funded from an estimated N971.028 billion revenue comprising Total Internally Generated Revenue (TIGR) of N723.817 billion, capital receipts (N71.811 billion), and federal transfers (N175.400 billion).
Federal transfers and receipts are said to be conservative but a key part of the budget is expected from Internally Generated Revenue (IGR), with the performance of the Lagos State Internal Revenue Service (LIRS) anticipated to increase 30 per cent.
Simpler collections are being tightened to boost revenue and more companies will remit taxes as 2020 already took care of many tax holidays.
Lagos also plans to harness huge revenue-generating opportunities particularly in real estate and transportation, and to leverage data to uncover new tax troves.
Following the 21 per cent reduction of the 2020 budget, particularly with many of the same challenges still in place, assumptions for the 2021 projected revenue can only be proven by their delivery, according to Nairametrics.
The deficit of N192.494 billion is projected to be funded by a combination of internal and external loans.
Borrowings of N192.5 billion compared to IGR of N723.8 billion is fair as the state projects to internally generate almost four times borrowings. But the underlying national debt should raise eyebrows for additional debt – even though it is planned to fund capital projects.
Foreign exchange (FX) market instability and increasing debt burden are some of the main points of consideration with budget deficit financing.
Egbe has explained that most of the loans will be in naira to protect the state from FX risks. Finance Commissioner, Rabiu Olowo, added that the loans will be well within fiscal sustainability levels.
Olowo said: “We cannot depend on our own internally generated revenue or the federal transfer that we get from the federal government if we want the kind of development that Lagos needs at this time.
“For this, there are two main benchmarks that we follow. We have the federal debt management office benchmark of 30 per cent debt to revenue, and of course the World Bank benchmark which is 40 per cent.
“We closed year 2020 at 19.8 per cent and for year 2021. While we project about 22 per cent debt to revenue ratio, we are still within both benchmarks.”
Deficit financing of N192.5 billion is proposed to be raised through local capital market bonds of N100 billion, external loans (N55 billion), and internal loans (37.5 billion).
Priority areas
Capital expenditure accounts for N702.9335 billion and recurrent N460.587 billion, a ratio of 60:40.
Per Nairametrics reporting, while there could be argument as to the sustainability of the allocations given an infrastructure gap, the government has extra-budgetary strategies for funding projects.
They include Private Sector Infrastructural Partnerships, bespoke financing terms, and structured (also PPP) critical infrastructure as used for the blue and red rail, and the metro broadband fibre ring.
The conclusion is that Lagos can deliver more than can be captured in the budget.
Allocation of the budget based on the Classification of Functions of Government (COFOG) also shows an increase in economic affairs (Agriculture, Commerce, Tourism, Art & Culture, Energy and Mineral Resources, Transportation, Infrastructure and Waterfront) from 26.55 per cent in 2020 to 29.35 per cent at N341.4 billion in 2021.
This implies that opportunities could exist in these areas for local and international investors willing to produce the value Lagos requires for its objectives.
Because sectorial allocation has limitations and cannot solve all problems at the same time, the focus should be on successful implementation and continued transparency.