CHAPTER ONE

1.0 INTRODUCTION

Public finance is a branch of economics that deals with the ways in which government obtains financial resources, how these resources are utilized, and the impact of government revenue and expenditure on the economy and society as a whole.

Government revenue and expenditure are important components of public finance. In a developing economy such as Nigeria, the management of a moderate level of deficit financing is generally directed towards productive and development-oriented projects. This has made it necessary to examine the volume of revenue generated and the expenditure incurred by the Nigerian government over a period of years.

The government generates revenue from different sectors of the economy. These sources of revenue can broadly be classified into oil revenue and non-oil revenue.

1. Oil Revenue

Oil revenue refers to the income generated from the petroleum sector of the economy. It comprises the following:

a. Petroleum profit tax and royalties.

b. Other sources, which include revenue obtained from export sales, domestic sales, taxes on petroleum products, rents, and other related sources.

2. Non-Oil Revenue

Non-oil revenue refers to revenue generated from sectors of the economy other than the petroleum sector. It comprises:

a. Company income tax.

b. Customs and excise duties.

c. Value Added Tax (VAT).

d. Federal Government independent revenue, which consists of revenue from interest payments, rents on government properties, personal income tax from the armed forces, police, external affairs personnel, and residents of the Federal Capital Territory.

e. Other sources, which include customs levies, education tax, and other related revenues.

The revenue generated from the various sectors of the economy is distributed or allocated to different accounts and purposes, which include:

1. Federation Account, including transfers to the Federation Account from domestic oil sales.

2. Value Added Tax (VAT) Pool Account.

3. AFEM surplus account.

4. Petroleum Trust Fund.

5. JVC Payment Account.

6. External Debt Service Funds.

7. National Priority Projects Fund.

8. Other allocations, which include transfers to special and excess reserves and education funds.

The revenue generated from the different sectors of the economy is utilized for various categories of government expenditure. These include the following:

1. Administration

Administrative expenditure comprises:

a. General administration.

b. Defence.

c. Internal security.

d. National Assembly.

2. Economic Services

Economic services include:

a. Agriculture.

b. Roads and construction.

c. Transport and communication.

d. Other economic services.

3. Social and Community Services

Social and community services comprise:

a. Education.

b. Health.

c. Other social and community services.

4. Transfers

Transfers include:

a. Public debt charges.

b. Domestic obligations.

c. Foreign obligations.

d. Pensions and gratuities.

e. Federal Capital Territory (FCT) and other transfers.

1.1 HISTORICAL BACKGROUND OF THE STUDY

The National Bureau of Statistics (NBS) has its origins in the year 1928, when a statistics unit was established in the Office of the Colonial Secretary within the Cabinet Secretariat of the British Colonial Administration.

In 1947, a more deliberate reorganization of statistical activities took place through the establishment of a statistics section within the Department of Customs and Excise. This section subsequently developed into a full-fledged Department of Statistics.

By 1949, the responsibilities of the department had been expanded, enabling it to serve as the nucleus of a centralized national statistical office for the country. Following the adoption of the federal system of government in 1968, the central and regional governments had their statistical establishments incorporated into a decentralized National Statistical System (NSS). A legal framework for statistical operations in Nigeria was provided through the Statistics Act of 1937. The Act provided legal support for a decentralized statistical system while encouraging cooperation between the central and regional statistical offices, as well as the coordination of their activities.

At independence in 1960, the Department of Statistics was transferred from the Customs and Excise Department to the Federal Ministry of Economic Development. Its name was subsequently changed to the Federal Office of Statistics (FOS). During the 1980s, further reorganization of the Nigerian Statistical System (NSS) resulted in the Central Bank of Nigeria assuming responsibility for the collection of financial statistics. The National Population Commission was also assigned responsibility for population statistics. This included the conduct of population censuses, the collection of vital statistics such as birth and death registrations and immigration statistics, as well as the conduct of demographic and health surveys.

In 1989, a fully computerized data management agency known as the National Data Bank (NDB) was established. The NDB served as a data repository designed to contain time-series data dating as far back as 1914, when Nigeria was created. The Federal Office of Statistics (FOS) and the National Data Bank (NDB) maintained a complex and overlapping relationship with other members of the National Statistical Office (NSO).

Reforms aimed at repositioning the Federal Office of Statistics (FOS) began in 2004 when it was merged with the National Data Bank. These reforms were driven by the Statistical Master Plan (SMP) developed by the Federal Government of Nigeria with assistance from the World Bank.

The merger of the Federal Office of Statistics (FOS) and the National Data Bank (NDB) resulted in the establishment of the National Bureau of Statistics (NBS). The creation of the NBS was intended to provide the statistical agency with a national outlook and establish it as the apex statistical agency responsible for statistical activities across the three tiers of government.

The National Bureau of Statistics is expected to coordinate the production of official statistics across all Federal Ministries, Departments and Agencies (MDAs), State Statistical Agencies (SSAs), and Local Government Councils (LGCs). The 1957 Statistics Act was repealed, and a new bill was subsequently passed to provide the National Bureau of Statistics with an appropriate legal foundation for its operations.

1.2 AIM OF THE STUDY

The aim of this study is to conduct a statistical investigation of the public finance of the federation, specifically the revenue and expenditure of the Federal Government of Nigeria, covering the period from 2003 to 2008, using regression analysis.

1.3 OBJECTIVES OF THE STUDY

The objectives of the study are to:

1. Examine the amount of revenue generated and expenditure incurred during the period from 2000 to 2011.

2. Determine the relationship between revenue and expenditure using correlation analysis.

3. Determine the degree of association between expenditure and revenue through correlation analysis.

4. Forecast future revenue and expenditure using time-series analysis.

5. Make necessary recommendations based on the findings of the analysis.

1.4 SCOPE OF THE STUDY

The study is limited to the revenue and expenditure of the Federal Government within the period under consideration. The data used for this project are presented in billions of Naira and are based solely on an annual basis.

Data refer to the collection of specific information. Such information is collected to enable the researcher to gain an understanding of the environment being studied and to achieve specific research objectives.

The data utilized in this project were obtained from the National Bureau of Statistics (NBS). The study relies on secondary data extracted from the statistical bulletin of the National Bureau of Statistics.

1.5 DEFINITION OF TERMS

Public Finance: Public finance is a branch of economics concerned with how government obtains financial resources, how such resources are utilized, and the effects of these activities on the economy and society.

Budget: A budget is an estimate or forecast of expected government revenue and expenditure for a specified period of time.

Revenue: Revenue refers to the income received by a government from various sources and used to finance the expenses and activities of the nation.

Recurrent Revenue: Recurrent revenue consists of tax receipts and non-tax receipts generated within a fiscal year.

Capital Revenue: Capital revenue refers to receipts obtained from non-financial assets that are utilized in production for a period extending beyond one year.

Expenditure: Expenditure refers to the outflow or use of resources by the government in relation to other sectors of the economy, whether such expenditure is required or unrequested.

Recurrent Expenditure: Recurrent expenditure refers to payments associated with non-capital or non-payable transactions that occur within a period of one year.

Capital Expenditure: Capital expenditure refers to payments made for non-financial assets that are utilized in the production process for a period exceeding one year.