Fuel subsidy: Enough of cosmetic palliatives, By Yemi Adebowale

In the last 25 days, a very good friend of mine, Francis Adelakun (chartered accountant) has been struggling with his expenditure in relation to his income, no thanks to the huge rise in the price of petrol. Driving from his house in beloved Ikorodu, Lagos State to office in Ikoyi, requires just 20 litres of petrol. Well, it used to be “just 20 litres” until the removal of petrol subsidy on May 29 by President Bola Tinubu. That 20-litre is no longer “just”. Adelakun now requires N10,000 daily for petrol. If he is unlucky to run into very bad traffic, he would spend more. With 22 working days in June, this chartered accountant will require a minimum of N220,000 to fuel his car to Ikoyi and back home.

A traumatised Adelakun bemoaned on Thursday: “So, how much is the salary I will collect at the end of the month”? This is the dilemma most working-class car owners have been facing ever since petrol price went up. Non-car owners are also struggling with how to align their income with the massive rise in transport expenditure. For most workers, cost of transportation now outweighs their salaries. Many have been pushed into the hadal zone. The pain is becoming unbearable. That was why Kwara State Governor, Abdulrazaq Abdulrahman reduced the working periods for core civil servants to three days in a week.

The colossal increase in prices of petroleum products, coupled with the weaker Naira following the unification of forex exchange rate windows, have also caused a big increase in the prices of most goods and services, further raising the cost of living. Families are experiencing disruptions in their lives arising from these increases which triggered inflation. Most households are in disarray. For businesses, production cost, operating cost as well as cost of doing business have gone up astronomically. Demands are also shrinking because consumer purchasing power is now very weak. This would eventually result in lay-offs.

My position remains that the petrol subsidy removal should have been a gradual one, with concrete welfare policies already in place before the removal. Adding almost N380 to a litre of petrol in one swoop is outright callousness. Those behind this decision won’t feel the pain one bit. Well, the ugly deed has been done by the Tinubu government and it looks like there will be no going back. The government is now talking about palliatives; something that ought to have preceded the removal. One of the palliatives is the plan to review the minimum wage. When the National Economic Council (NEC) met last week, the members were also talking about a N702 billion cost of living allowance to civil servants as part of the intervention plans.

Most of the planned palliatives are for civil servants that make up less than two percent of the nation’s estimated 220 million population. Government is planning salary increase as if everybody is a civil servant. They are talking about distributing cash to an insignificant number of households. I guess it would be the usual rubbish N5000 monthly aid for a few months.

For me, the federal and state governments must come up with far-reaching measures that would capture not just civil servants, but a large number of Nigerians. As the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, rightly stated, “wage increases don’t cover everyone, as those on payrolls are 10 percent of the total working population.”

There is nothing wrong with wage increase for civil servants, but the federal government must focus on macroeconomic tactics that will bring down the cost of living for all Nigerians. One of the ways to do this is to come up with monetary policies to fight inflation. What can improve the quality of life and purchasing power of Nigerians right now is for inflation, which is now at a record 22.4 percent, to start falling. Rising inflation will make whatever approved wage increase insignificant.

Yusuf stressed: “If the government engages effectively, ideas will emerge on what it can do to bring down the cost of staple foods. It is necessary also to bring down the cost of food through import duty waivers, and tax waivers on critical inputs, both in food production, processing, and agriculture.”

Another way the federal government can boldly tackle rising inflation is to slash the Value Added Tax on essential goods to 2.5 percent. This means amending Finance Act 2023. It must be done quickly. Import duties on food, medicine, vehicles, building materials and other essential goods must also be drastically slashed.

Another pragmatic palliative that will ease the pressure of fuel price increase is for the Nigerian government to work on uninterrupted electricity supply. Nigerians are heavily dependent on petrol for electricity because of erratic public power supply. Many spend a lot to power generators with petrol or diesel. So, if electricity is fairly stable, the huge cash requirement to fuel generators will not be there. Improved supply of gas at a reduced price must also be worked on, to reduce electricity price. Signing a new power law is not enough. Multidimensional steps must be taken to improve supply.

Those planning post-fuel subsidy removal palliatives are not even talking about palliatives for businesses. How will private businesses increase salaries when they are struggling to survive? Businesses are battling dwindling consumer demands and multiple taxation. A review of the multiple taxes, levies and fees paid by businesses and suspension of recently introduced ones would provide immediate succour to them.

I have also stressed the need to put good cash in the hands of a large number of the population. A downward review of the Personal Income Tax law will keep more cash in the pockets of Nigerians. The Tinubu government should emulate the ongoing steps by the British government to put good cash in the hands of those most in need following rising costs of living. Nearly 15 million households have each received £150 to help with the cost of living. This is about N140,000. More than £2 billion has been handed to 15 million households in England under the scheme. This is the meaning of good cash. It is part of £37 billion of British government support targeting those most in need to help with the cost of living. This includes at least £1,200 (each) of extra support for millions of the most vulnerable households this year, with all stressed domestic electricity customers receiving at least £400 towards their bills.

This is the way to go if the Tinubu government truly wants to help millions of Nigerian households manage fuel subsidy removal pressures. Not the miserable N5000 monthly cash transfers being planned for traumatised Nigerians. Cosmetic palliatives must be jettisoned if Tinubu truly wants to touch lives. He should swiftly start by slashing VAT on essential goods to 2.5 percent.

-Source: First published in Thisday Newspaper