Don’t allow anyone to fool you with the cock-and-bull tale that capitalism is only a market-driven economy, and its citizens and corporates do not receive subsidy or any form of helping hand. If you believe that, you will believe anything. Tax experts will admit that tax breaks, given to companies by governments, are a form of subsidy. Tax holidays are usually granted for infant or pioneer companies, or entire industries, to thrive and overcome teething problems.
Recently, the Nigerian government, led by the President, Major General Muhammadu Buhari (retd.), introduced a policy to exempt companies with annual turnover lower than N25 million, that engage in agribusiness, or are in their initial four calendar years of operation, from paying Company Income Tax.
When explaining the New Finance Act, Zainab Ahmed, the Minister of Finance, Budget and National Planning, explained: “Our assessment is that any business that has a turnover of less than N25m needs that break, not being taxed so they can invest in their businesses.”
You may have seen recent footage on the CNN where executives of American airlines told President Donald Trump, the press, and American taxpayers, that if they do not get the $25 billion intervention fund needed to keep their businesses running, they may have to furlough about 33,000, or one-third, of their workers.
To the human resources personnel, furlough means leave of absence from work, granted to staff, who ask for such facility, usually to further their education, take care of their health, or sometimes to go on extended holidays to see the world.
But to trade unionists, it means unilateral reduction of work hours by employers, usually in economies where wages are calculated based on hours worked. The implication is that the wages or salaries of affected workers are reduced to the extent of hours or days that the worker is excused from work.
The palliatives, of food, cash and other domestic supplies, given to citizens who were expected to stay at home because of the lockdowns imposed by the governments of Western countries, because of the outbreak of COVID-19, are a form of subsidy.
If you agree that employees are paid for their skill, time and energy, you will accept the argument that the palliatives, at least, pay for the energy that the workers have not utilised. They received the palliatives only because they are citizens.
Citizens basically got paid for doing nothing. Those who received these freebie palliatives will not deny that they have received subsidy. And pray, what is a freebie if not a subsidy? English economist, Maynard Keynes, found a clever way by which welfarist governments can give subsidy in an economic depression.
Keynes suggested that a government could pay a set of idle workers to dig a hole, and then pay yet another set to fill up the hole with the sand. He reasons that by doing so, a government will be reviving an economy that is going to the nether side of its fortune.
And like a typically pokerfaced economist, Keynes may not think there is room for morality in economics: As long as a worker performs a required task, and gets his negotiated remuneration, the conditions for economic transactions have been met.
So, if a Red Cross volunteer ends up being paid for what he would have ordinarily done for free, that becomes an economic transaction that must be accounted for as part of a country’s Gross Domestic Product. But back to the subject of subsidy. The bailout given by former American President Barack Obama, under the doctrine that some companies that employed a large number of workers, were too big to fail, was a subsidy.
The same is true of the bank guarantee granted to troubled Chrysler Motors under feisty auto salesman, Lee Iaccoca, by the administration of former President Jimmy Carter, one of the predecessors of former President Obama. While President Obama reportedly shelled out more than $700 billion, the total amount of bailouts that successive American governments had paid out, according to a 2009 report, had surpassed $8 trillion.
Former Presidents Obama and Carter intended to save the American economy from recession, retain jobs that would have been lost, save the affected companies or industries from further financial hemorrhage, and help the economy to recover.
America and many European countries are notorious for providing subsidies to their agricultural sector, though Bretton Woods institutions –the World Bank and the International Monetary Fund– act as if no such thing occurs, even as they prescribe harsh economic measures for other countries.
A 2018 report indicates that the American government spent $20 billion as direct subsidy to 39 per cent of the nearly 2.1 million American farms that produce corn, soybean, wheat, cotton and rice, for the economy.
Under America’s novel Payment In Kind programme, the government, to check the price of commodities from falling to the extent that the produce becomes unprofitable in a certain year, would sometimes ask some farmers to abstain from cultivating their farms.
The government would, in turn, offer to pay such farmers, not in cash, but by issuing certificates that enable the farmers to receive federal surplus grains. Sometimes, the government gives agricultural subsidies through the non-recourse scheme that uses the future harvest of farmers as collateral for loans.
In plain English, an agricultural subsidy is a government incentive paid to agribusinesses, agricultural organisations, and farms, to supplement their incomes, manage the supply of agricultural commodities for profitability, and influence the cost and supply of agricultural commodities.
Because subsidies can drive down the prices of foodstuffs in poorer countries, like Nigeria, that are net importers of foodstuffs, must find a way to subsidise at least the food crops sub-sector of its agricultural industry. If not, the agricultural sector may never thrive, and Nigeria will continue to import foodstuffs.
One good way to achieve this is to reduce costs of electricity, transport, farm inputs, like seedlings and fertiliser, and loans. Anyone who is worried that these subsidies could jeopardise government revenue should remember that when companies prosper, the taxes they pay will make up for money spent.
The free or extremely cheap parboiled rice that was dumped into the Nigerian economy in the 1960s and 1970s was largely responsible for the destruction of the rice farming enterprises of Nigeria.
The entire gamut of governance is a subsidy, anyway. If there were no security agencies, like the military, the police, and the secret services, you can only imagine how much it will cost Nigerians if they must provide their own security.
If skeptics will bend over backwards a little, they will observe that money spent on infrastructure is actually a subsidy to industry. Those who incur N200,000 monthly to maintain an electricity generator in their company will confirm that they pay less than 10 percent of that to the municipal electricity supply company.
Nigerians who run electricity generators, dig their own boreholes, pay excessive medical bills at private hospitals, pay exorbitant tuition fees for their wards at private schools, and provide their own security services, need the government to find a way to deliver these services at affordable prices.
To assuage those protesting rate hikes, the government should consider subsidies on food, housing, education, health, transport, water and electricity sectors. No one is asking for a subsidy to buy mink coats.
Lekan Sote is of The Punch Newspapers. – Twitter @lekansote1
Source: The Punch