Now that there is a raging debate about palliatives as a tool to cushion the adverse impact of the removal of petroleum subsidy on the generality of Nigerians, particularly the low-income earners of Nigeria's society, there is need to think outside the box and examine some cutting-edge tools and concepts to get Nigeria out of this unfortunate circumstance.
Now that there is a raging debate about palliatives as a tool to cushion the adverse impact of the removal of petroleum subsidy on the generality of Nigerians, particularly the low-income earners of Nigeria's society, there is need to think outside the box and examine some cutting-edge tools and concepts to get Nigeria out of this unfortunate circumstance.
One of these cutting-edge tools is Universal Basic Income (UBI). UBI is a regular cash payment to all members of a community without a work requirement or other conditions. A universal, unconditional, individual, regular cash payment.
For the avoidance of doubt subsidy in itself is not a bad idea from an economic standpoint. It has only been abused in Nigeria over the years. Subsidy is a very popular tool all over the world to address socio economic problems.
Before we continue with this piece, it is important to briefly discuss the concept of subsidies. What is a subsidy?
"A subsidy is a benefit given to an individual, business, or institution, usually by the government. It can be direct (such as cash payments) or indirect (such as tax breaks). The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy." Important issues to pay attention to, based on this definition include the following: A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government.
In economic theory, subsidies can be used to offset market failures and externalities to achieve greater economic efficiency.
Those that do not like subsidies point to problems with calculating optimal subsidies, overcoming unseen costs, and preventing political incentives from making subsidies more burdensome than they are beneficial.
Subsidy can also become super burdensome because of the emergence of rent seekers who end up becoming so powerful that the overall benefit to the society is obliterated, rendering the subsidy to become a major burden on the economy. This is what we have had in Nigeria for that past 30 to 40 years with our petroleum subsidy.
Furthermore, advocates of free market economy do not like subsidy largely because of the following reasons: Subsidy unnecessarily distorts the market and creates inefficiencies in the economy Subsidy mis-allocates resources from more productive uses to less productive uses Government spending on subsidy is never as effective as government projects them to be.
The cost and unintended consequences of applying the subsidy are usually not worth it and
finally.
The act of subsidizing promotes corrupt political process.
Let us now go back to the issue of using UBI as a tool to use for the palliatives being proposed by the President Bola Ahmed Tinubu (PBAT) administration to ease the pains of Nigerians because of ending petroleum subsidy in Nigeria. UBI as we have previously mentioned, is a regular cash payment to all members of a community or society (in this case Nigeria) without a work requirement or other conditions. In other words, a universal, unconditional, individual regular cash payment.
UBI is necessary now in Nigeria because of; the perennial growth of income and wealth inequalities, the precariousness of our labor market, and the persistence of abject poverty in the land.
The basic characteristics of UBI are periodic, it is a recurrent payment usually every month. By making cash payment, it is possible for Nigerians to convert their benefits quickly into whatever they may desire. Universal - it is paid to all and not targeted to a specific section of the population. Individual - it is paid on an individual basis not based on household, and finally unconditional - it involves no work requirement or penalties, it is accessible to those that are working and to those that are not working, voluntarily or involuntarily. It is important to note that UBI will be received independently of any other income.
What is next to be considered are the following: funding source, the amount of payment, the period of payments, and the policy package that will come with the implementation of UBI. We will need to determine what percentage of our current GDP will on an aggregate basis be committed to UBI. This can range from 5% to 7% of our GDP. Models can be developed that will reveal the optimum aggregate percentage of our GDP that we will commit. We strongly suggest that the government should consider N25,000 per month.
UBI can be funded in many ways. It can be funded with proceeds from the following: income tax, a wealth tax, a consumption tax, financial transaction taxes, and most recently carbon taxes. A combination of these can also be a source of funding for UBI. In the case of Nigeria, the removal of petroleum subsidy has resulted in a huge monthly savings. The proceeds of the savings can be used to fund the UBI.
The next step will be to determine the amount of periodic payment and the duration of the payment. Is it going to be for six months or a year? We strongly urge the government to consider making this payment for a year. One year will be enough time for the government to conceive and implement medium to long term programs that will set the economy on a path of consistent growth, result in good paying jobs, and increase economic aggregate income.
Finally, there is need to need to determine the policy package. The government must consider the supply side in their interventions to address the potential inflationary impact of UBI. These interventions must include food security, energy security, effective and efficient transportation systems.
Nigeria must embark on rapid agricultural development that will adequately address the issue of food security. The government must quickly increase the production of staple foods - grains, vegetables, peppers, and cheap protein sources. There is need to increase the production of beef by going down the value chain. Chicken must be cheap and affordable for the average Nigerian. Production of grains such as maize and sorghum must be increased so that it is widely available for animal feed production.
To be continued tomorrow
Oniyide, Social and economic analyst, Abuja and Prof. Onabanjo, Social Entrepreneur, resident & CEO: A D King Foundation, Inc USA.
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