Fiscal Federalism and Local Government Finance in Nigeria



Fiscal federalism deals with the sharing of resources in a federated nation. Over the years problems about local government finance have become an important aspect of intergovernmental relations. Constitutionally, local government is the third tier of government which exists as an independent entity, possessing some degree of autonomy and sovereignty. However, its capability to perform its constitutionally mandated functions is beleaguered by the problem of inadequate revenue. In Nigeria, a number of factors have contributed to the financial setback experienced by most local governments and these include: overdependence on allocations from state and federal governments which in most cases are withheld by the same federal and state governments; lack of fiscal autonomy; creation of non-viable local governments, among others. The aim of this paper is to examine the problems of the local government in Nigeria, especially concerning its financial limitations, necessitated by the unequal share of resources, imbalance revenue-sharing formulae and lack of fiscal autonomy in the operations of the local government in Nigeria.

Keywords: Fiscal federalism, Local government, Autonomy, Finance

1.  Introduction

The concept of local government simply implies government at the grass root level. The local government is the most critical and important level of government because it deals directly with the citizens of a particular state. The local government is a formal organization set up by law, and it has a degree of autonomy to perform certain constitutional functions. Local governments are created with the expectation of delivering services within their jurisdictions. Any state or nation aspiring for development must ensure that there is the decentralization of power and functions to lower tiers of government in order to accommodate the interest of individuals at the grass root level. In most federal systems of government there is the existence of local authorities or local government; and their constitution allows for decentralizing power and functions as well as finance down to grass root governance.

Historically, the local government in Nigeria has faced a lot of problems; it has been beset by limitations ranging from lack of autonomy, dictatorial attitude of the central government, and financial limitations, of course, among others. The native administration set up by the British colonial administration lacked the capacity to function without incessant interruption from the central colonial authority. The establishment of regionalism in 1945 and the quasi-federal system in 1951 set the pace for a federal structure in the country. Yet, while during this period there was the existence of local authorities, their functions(rights) were not clearly defined but until 1976. It was the 1976 local government reform that set the pace for the establishment of an ‘independent’ third tier of government in Nigeria.

Indeed, finance is a necessity for any organization with responsibilities and functions to perform. The survival and sustainability of local government largely depends on its finance(Bello-imam, 2007). According to the 1979 constitution, there were two major sources of local government revenue and these included the internal and external sources. The internal sources included poll tax or community tax, property tax, user fees and benefit tax, and others; the external sources of revenue for local government included fiscal transfers from the central government and loans. Although these requirements are stipulated in the Nigerian constitution up till today, in reality and in practice both the state and central government shave exhibited a nonchalant attitude towards fiscal transfers to the local government. More so, most of the internal sources of generated revenue by the local government are hijacked by the

central and state governments, leaving the local government with multiple functions but limited means for proper implementation of such functions.