President Buhari’s final months have been packed with a devastating feedback loop of macroeconomic and social problems, coupled with another outcome of the most serious forces of our time: economic inequality. Of course, the existing problems such as extreme poverty, high cost of living, insecurity and deepening inequality; Likewise, inequality exacerbates the spread of these problems, particularly in northern Nigeria.
Irrespective of opinions, the administration is judged on these facts. Despite this, the widening of income inequality is the greatest challenge of our time, as US President Obama stated in 2013.
But unlike the other countries, where poverty is falling in absolute terms and inequality is increasing, Nigeria faces rising poverty and growing inequality. The World Bank report highlights that more than two in five people in Nigeria, 46 percent of the population, live in extreme poverty. Relative income has not increased for over six years, leaving them financially poor. The cost of living has increased due to the high inflation rate. These people are also disadvantaged by the federal and state governments when it comes to education, infrastructure and other basic needs. Most of them are located in northern Nigeria.
In comparison, Nigeria’s top three richest men have combined wealth of $23.9 billion, according to the Forbes 2021 list of African billionaires. Aliko Dangote is worth $12.1 billion, Mike Adenuga is worth $6.3 billion and Abdussamad Rabiu is worth $5.5 billion. According to Oxfam, these three men’s wealth has increased by $6.9 billion since the pandemic. If 64-year-old Dangote spent $1 million (414 million naira) every day without reinvesting, it would take him 33 years to deplete his fortune — if he’s 97. The wealth of these individuals could end extreme poverty at the national level. But by 2021, the number of people living in extreme poverty had risen by seven million as Nigeria asserted its position as the world’s poverty capital.
But all of this has a silver lining. According to World Bank data, the life expectancy of Nigerians has increased from 46 years in 1999 to 55 years in 2019. This is one of the few real achievements of this administration, although those before it should also be acknowledged. Readers may hold opposing opinions even if they agree on the same facts. These should give us all hope.
Like economics Nobel laureate Joseph Stiglitz, the International Monetary Fund showed that inequalities tend to slow a country’s growth and make growth more volatile. Research by the IMF showed that increasing the income share of the poorest 20 percent of the population helps the country grow. In contrast, increasing the income share of the country’s richest people reduces its growth. For this reason, Organization for Economic Co-operation and Development countries rejected the idea of trickle-down economics – a means of distributing income from the rich to the poor. It was popular under the Reagan and Thatcher administrations – in the 1980s. There is overwhelming evidence that inequality is not inevitable, poverty even more so. Inequalities and poverty are socially reproduced and changeable.
Despite promises to fight corruption and injustice, the costs of governance add to the problem. According to Senator Shehu Sani’s revelation, Nigeria’s top politicians are paid over 750 times more than a school teacher and 150 times more than a police officer or other security guard. In fact, it would take a typical minimum wage worker 102 years to collect the annual amount handed to a Nigerian senator. Research shows that narrowing the gap between rich and poor is not limited to good for the economy. There is evidence that countries that reduce inequality in their economies have experienced longer life expectancies, higher educational attainment, more social mobility, more trust and more. These countries include Namibia, Togo and other South American countries with an economic profile similar to Nigeria. The point here is that fairer, more equal societies benefit everyone. So the question is how to approach it.
The redistribution of resources is crucial. Changes in current policies to combat the unfair corporate tax burden are imperative. This could potentially lift millions of people out of poverty every year instead of pushing seven million people into poverty every year. Rising inequality placed a more significant chunk of the nation’s income in the hands of those facing higher tax rates. Nigeria’s tax system is regressive, meaning that lower-income individuals contribute more to government revenue than wealthy individuals. Public funds are also spent unfairly and inefficiently. Switching to a progressive wealth tax policy could lead to improvements and efficiencies. A progressive wealth tax is an annual tax levied on an individual’s net worth, with the wealthier individuals paying more. Of course, solvency and other taxation principles must be taken into account.
Oxfam’s 2022 Inequality Report shows that Nigeria has 4,690 people with net worth of at least US$5 million and about 250 people with over US$50 million. The report points out that imposing an annual tax of 2% on wealth over $5 million, 3% for those with $50 million and 5% for the three billionaires would bring in $4.1 billion each year. If the wealth tax were increased for the higher earners, say 5% on wealth over $50 million and 10% on wealth over $1 billion, the annual revenue would be over $6 billion. The annual wealth tax would be enough to provide a large proportion of the population with basic needs such as adequate water supply, homes, schools, hospitals, electricity and roads. Other things being equal, investments like this would reduce the existing social problems of poverty and inequality in our societies.
A lesson from the 1993 Clinton administration may shed light on the success of this policy. As the American government was faced with an ever-growing deficit, tax increases seemed necessary. It was suggested that those who had benefited most from the economic expansion and tax cuts of the 1980s should pay more taxes. Only the top 1.2% of taxpayers saw tax increases. For example, married couples earning more than $140,000 had their income tax rates increased from a marginal rate of about 28% to 36% or 39.6%. As it turned out, in the years after 1993 tax receipts from higher-income individuals were much higher than expected. The increased revenues were primarily responsible for eliminating the deficit in the late 1990s. It’s worth noting that Professor Martin Feldstein, Reagan’s chairman of economic advisors, argued that the tax hike would bring in less revenue than estimated. But history has shown that he predicted incorrectly.
Facing Nigeria’s macroeconomic and social crisis, turning a blind eye to inequality would prove disastrous in the coming years. As with Clinton, political will is required to address these issues. This year, 2022, will be President Buhari’s last full fiscal year in which he has an opportunity to make amends.
dr Aminu is Senior Lecturer in Economics at Cardiff Metropolitan University (Twitter: @AminuEcon)