Equity issues have dominated such discussions as they should be. The effort has been to identify variables which reflect the equity concerns. In designing a suitable scheme of fiscal transfers, three considerations seem relevant: Need Cost disability Fiscal Efficiency Need refer to expenditures required to be made but not met by own resources; cost disabilities refer to such characteristics of a state that necessitate more than average per capita cost in service provision due to factors that are largely beyond its control, like large areas with low density of population, hilly terrains, poor infrastructure, proneness to floods and droughts; and fiscal efficiency encompasses parameters like maintaining revenue account balance, robust revenue effort, economies of expenditure linked to efficient provision of services and the quality of governance. Equity considerations must, in effect, aim for ensuring the provision of selected services at minimum acceptable standards across the country. It is seen that on average, the states spend only half of the average per person expenditure of high-income states in social services. Such equalisation of services may demand some form of conditional grants requiring monitoring of the use of funds to achieve the desired objectives. At the same time, ‘efficiency’ in the use of resources should be ensured and promoted. States that perform more efficiently in the delivery of services or raise more revenues relative to their tax bases should not be penalised. The task of formulating a sound transfer system has to establish a fine balance between equity and efficiency, a system where fiscal disadvantage is taken care of but fiscal imprudence is effectively discouraged. In such a system, states that are fiscally disadvantaged but prudent stand to gain, and states that have the resources but do not use them well stand to lose. Needless to say, fiscal responsibility must be shared by both the Centre and the states. With the two channels of tax-devolution and grants, it should be possible for the Finance Commission to achieve the goals of equity and efficiency through a proper mix. A sound fiscal system is a necessary concomitant of sustained growth with the equity. Resource transfers have to be an integral part of such a system facilitating efficient use of resource, accelerated growth and balanced regional development.
Each of government should have clearly assigned responsibilities, regardless of what responsibilities are assigned to government as a whole. Overlaps should generally be avoided, and long concurrent of shared responsibilities are particularly ambiguous. Fiscal and revenue-sharing arrangements between the central and governments should be stable. Sub national governments need to have a sound estimate of these resources before preparing their budgets. Lack of predictability affects both efficiency and fiscal control at the local level. Without an indication of the amount of resources to be transferred to them, sub national governments cannot program their expenditures. Incentives for increased efficiency are needed. However, the central governments reduce transfers to sub national governments when they make economies in spending or improve their own tax collection. The fiscal federalism literature provides some useful principles that be invoked when fleshing out alternative reform agendas and, in particular, the proposed (re)assignment of functions (expenditure responsibilities and taxing powers) between levels of government. These principles relate to: expenditure responsibilities; taxation powers; and intergovernmental grants. Expenditure Responsibilities The principle that deserves mention is that of subsidiary, which has been interpreted in a federal system of government as implying that provision of goods and services should be administered at the lowest level feasible within the national interest. The rationale appears to be that this permits such provision to most closely match the preferences of the people. The second principle to emerge is that of correspondence, which argues that where consumption or use of a particular good or service is limited to the boundaries of a particular jurisdiction, then its provision should be allocated to a sub-national government whose boundaries are defined by the spatial benefit (or market area) boundaries associated with this good or service. The resulting allocation generates economic efficiency since it allows for a matching of local demand and supply, with
The power given to the Parliament to legislate on exclusively State subjects in the following situations: With respect to the matters in the State list in national interest, but for a limited period (article 249) In respect of any matter in the State list if the proclamation of emergency is in operation (articles 250 and 353) For two or more States by consent of States (article 252). While the Constitution has indicated the broad framework for the terms of reference of the Finance Commission, it allows the Finance Commission to determine its own principles for making recommendations in relation to the tasks assigned to it. The Constitution also permits the Finance Commission to follow its own procedure in the matter. In addition to the Constitutional provisions, Parliament has enacted the Finance Commission (Miscellaneous Provisions) Act, 1951, which prescribes the qualifications for the chairman and members of the Finance Commission and also the procedure that the Finance Commission should follow to perform its duties. The ensuing paragraphs review the principles adopted by the Finance Commissions for assessment of the finances of the Centre and the States and for the tax devolution, grants-in-aid and other items of the Transfer of Resources. In many federations most major taxes are collected centrally but the revenue is shared between the national and sub-national levels of government. The sub-national levels of government are then left to balance their budgets by imposing their own taxes to supplement their fixed share of national tax. Mathews (1986, p.54), who did take fiscal federalism seriously, noted that “ in a modern federation, the revenue powers and expenditure responsibilities of the different levels of government are so interdependent that it is no longer possible for governments to make effective taxing and spending decisions without regard to the effects of those decisions on other governments”. In a federation, the ideal situation is for each level of government to raise the taxes necessary to fulfil its expenditure responsibilities. This ensures that each government is accountable and cannot shift blame to another government for high taxes or inadequate expenditure. It also forces governments to make the hard choices involved in balancing the burden of tax against the need for services.
Nigeria The first phase of the development of fiscal federalism in Nigeria occurred during the 1948-1952 period. This phase was marked by a centralised financial arrangement in which the excess in the budget of the central government was allocated to regional governments on the principle of derivation. The expenditure needs of the central government thus took precedence. In the second phase (1952-54) autonomous revenue and tax jurisdiction for the regional governments was introduced in addition to the operation of the principle of derivation for the sharing of federally collected revenue. The basic elements of the second phase were carried over to the third phase A major distinguishing factor of this phase was the emphasis on the derivation principle in the sharing of federally collected revenue. Debates on Nigeria's fiscal federalism preceded the gradual evolution of Nigeria into a colonial federal state in 1954 throughout its history; it has been evident that Nigerians have always been sensitive to the fiscal dimensions of its federation. Nigeria's media have been awash with the debate over the nature of resource generation, distribution, and challenges of equalization in the federation. At the National Political Reform Conference in 2005, delegates from some states of the federation staged a walk-out because of the nature of resource distribution. The Nigerian Constitutions from 1960 to 1999 recognized the citizenship of the every Nigerian. All Nigerians supposedly have the right to settle down anywhere in the country to pursue their legitimate businesses and are expected to have equal rights everywhere in practice. But this is not true. In reality there is a contradiction. The ethnic consciousness, indigenous ship-citizenship rights are not still well-defined and accepted. Many states and communities recognize their indigenes and can easily isolate settlers, and treat them so, no matter how long they have lived in the area. In the political process this has become very controversial and has generated many violent crises. In some cases the spill-over or hang-over of these issues have led to electoral violence, because it becomes important who is elected– indigene or settler. The Jos North violence, the Wase case, the Tiv–Jukun and similar cases of violence illustrate the explosive nature of this issue in the polity and in the electoral process. State governments may want to enact laws stating the residency requirements for