University of Nigeria Virtual Library Serial No ISBN 978 – 8087 – 36 - 1 Author 1 ONAH, F. E. Author 2 Author 3 Title Fiscal Federalism in Nigeria Keywords Description Fiscal Federalism in Nigeria Category Social Sciences Publisher Great Ap Express Publishers Ltd Publication Date 2006 Signature Fiscal Federalism in Nigeria edited by F. E. Onah GREAT AI' EXPRESS PUBLISHERS LTD NSUKKA - NIGERIA First Published 2006 by GREAT AP EXPRESS PUBLISHERS LTD 3 Obollo Road, Nsukka Tel. 08054094419,08034276377,08043180775 O F.E. Onah ISBN 978-8087-36-1 Copyright Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright owners. Photoset, printed and bound by GREAT AP EXPRESS PUBLISHERS LTD 3 Obollo Road, Nsukka. Mnde in Nigeria Table of Contents Notrs on Contributors iv lntrod~~cfion, I) - xii II 1. Fcdcralism in Nigeria today. - Ken Ifesinnchi 1-28 2. Base of fiscal federalism in Brazil, India, Switzerland and the United States of America. - 0. E. Obinna 29-62 3. Revenue allocation system in Nigeria, 1946 - 2000. - F. E Onnh 63-94 4.Fiscal federalism and economic, industrial and social developrncnt of Nigeria. - Ben E. Aigbolclmn 95-130 5. Problems and challenges of fiscal federalism in Nigeria. - Roseline C. Onnh 131-148 . 6. T11c problems and prospects of fiscal federalism and nation- building in Nigeria,- Job C. Anynnzuu 149-174 7.The challenges of internally generated revenue of state in Nigeria. -R I Chima & K I< Ogtlji~iba 175-196 8. Politicisation of revenue allo~ationin Nigeria. - Roseline C. Onnh 197-208 9. Resource-expenditure gap in local government finances. - F. E. Onnh G. C. I. Olcoli 209-222 v 10. Revenue allocation and resource control in Nigeria. - F. E. Onnh G. E. R. Ukzuticzc 223-242 'v Notes on Contributors Ben E. Aigbokhan - Professor of Economics, Ambrose Alli University, Ekpoma, Edo State, Nigeria. Chijiolte I. Okoli - Research Fellow, Health Policy Research Unit, Department of Pharmacology and Therapeutics, College of Medicine, University of Nigeria, Enugu Campus. Ezebuilo R. Ukwueze - Lecturer, Department of Economics, University of Nigeria, Nsukka, Nigeria. Felix E. Onah - Professor of Economics, Department of Economics, University of Nigeria, Nsukka, Nigeria. John C. Anyanwu - Professor of Economics and Chief Economist, African Development Bank (ADB) Tunisia. Ken Ifesinachi - Senior Lecturer, Department of Political Science, University of Nigeria, Nsukka, Nigeria. Kanayo I<. Ogujiuba - Deputy Chief of Party, United States Agency for International Development (USAID),Nigeria Reforms Project. O.E. Obinna - Professor of Economics, formerly with Department of Economics, University of Nigeria, Nsukka, but now with the Department of Economics, Ebonyi State University, Abakaliki, Ebonyi State, Nigeria. Roseline C. Onah - Senior Lecturer, Department of Public Administration and Local Government, University of Nigeria, Nsukka, Nigeria. Reginald I. Chima - Formerly Senior Lecturer, Department of Economics, University of Nigeria, Nsukka, Nigeria but now the Monitoring Evaluation Specialist, United Nations Fund for Population Activity (UNFPA), Harare, Zimbabwe. Introduction F.E. Onah Concept and processes of federalism 111 political philosophy federalism is defined as "the theory or advocacy of federal political orders where final authority is divided between sub-units and he centre"'. Sovereignty is constitutionally divided between at least two territorial levcls so that units at each level have final authority and can act independently of the others in some areas. As a consequence, citizens have political obligations to at least two authorities. However, allocation of authority between the centre and the sub-units may vary from country to country. The above political order is contrasted with that of a unitary state. While federations involve territorial divisions of authority typicallv entrenched in the constitution which neither a sub-unit nor the centre can unilaterally alter, decentralized authority in unitary states can bc revoked by central legislative authority at will. A variant of federal orders is confederation. In contrast confedera tions have weaker centres than federations. Typically, in a confederation sub-units may legally exist. The centre only exercises authority delegated to it by sub-units; it is subject to sub-unit veto on many issues. Its decisions only bind sub-units but not citizens directly. It lacks an independent fiscal or electoral base. To cap it all, sub-units do not cede authority permanently to the centre. Often, confederations are based on agreements for specific tasks and the common government may be excised by delegates of sub-unit governemnts2. Having thus distinguished between a federal system and a unitary state on the one hand, and between a federation and a confederation on the other, we now focus attention on the federal system. In literature, two processes of federalism are identified. One process involves the coming together of independent states to cede or pool "sovereign powers in certain domains for the sake of goods otl~erwiseunattainable, such as security or economic prosperity"3. Such federations are referred to as "coming together" federations and are typically arranged to constrain the centre and prevent majorities from overriding sub-units. Examples of such federations include the present U.S., Switzerland and Australia4. The second process is evolution from a unitary set-up. "Holding together" federations develop from unitary states as governments' response to alleviate threats of secession by territorially clustcrcd minorities. In such arrangements particular domains of sovereignty are granted to sub-units while maintaining broad range of actions for the central government and majorities. Such areas of concession include languages and cultural rights in an asymmetric federatien. Federations in this category include India, Belgium, Canada and Spain5. A question that may naturally follow from the foregoing discussion is: What are the reasons for federalism? Answers to this question may be grouped jnto two sets, one set relating to the advantages of a federal order over and above that of completely independent sovereign states or secession, and the other concerning the preference of a federal order to that of decentralized unitary states. It is, however, necessary to point out that many of the reasons offered in literature in defence of a federal political order appear to be in favour of decentralization without requiringconstitutional entrenchment of split authority. Reasons for a federal system rather than separate states or secession. States can join together in a federation to jointly become powerful enough to deter or ward off external aggression F.E. Onnh vii and/or to prevent aggression or wars among themselves. In this sense; federations may foster peace by preventing wars and fears of war6. Federations can promote economic prosperity by removing barriers to trade among the federating units and through economies of scale. These strategies can be achieved by trade agreements among the units and by constituting themselves into a sufficiently large market capable of reaping economies of scale7. Federal arrangements may protect individuals and minorities' human rights by constraining state au thorities and entrusting the centre with the authority to intervene in sub-units. Federal arrangements can facilitate agreement, coordination and control over "spill-over" effects and externalities by transferring some powers to a common body. For example, where agreement would have been difficult to achieve between independent states, a federation may facilitate mutual use, control and coordination of the water resources of a river that transverses the federating units. Federal arrangements may improve the political influence of formerly sovereign governments of the federating units/states. This is achieved through better coordination and greater exercise of political power in relationships among the sub-units, especially the small ones that are now enabled to influence decisions rather than being mere policytakers. Federal political orders "may promote cooperation, justice, or other values among or within sub-units as well as among or within their constituent units, for instance, by monitoring, legislating, enforcing or funding agreements, human rights, immunity from interference, or de~elopment'"~. Reason for preferring federal orders to a unitary state In this section we consider arguments put forward in favour of a federal structure as opposed to a unitary form of been recognized as fundamental that even military governments attached importance to the continuation of a federal system of government in the country. It is also important to observe that the Nigerian federalism is one of competing decisions to hold together sub-units that began as a decentralized unitary state. It is therefore another example of "holding together" federalism. The federation began as a unitary colonial state in 1946 but disaggregated into three regions in 1954 and into for rcgions in 1963. In 1967 the regions were abrogated and 12 states created in their place. The number of states increased to 19 in 1976, to 21 in 1987, and ultimately to 36 in 1996 with a federal capital territory which has almost acquired the status of a state. In addition, the number of local governments which have functioned as a third tier of