Nigeria’s descending Disposable Income: Is it worth the worry?
According to Investopedia, disposable income the amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often observed as one of the many key economic indicators used to measure the overall state of the economy. It is a very strong trace to Marginal Propensity to Consume. Income from work/employment is one big lead towards disposable income. Disposable income is a very clear pointer to the standard of living in a country.
According to tradingeconomics.com, disposable personal income in Nigeria decreased to 17,580,757.16 NGN Million in the first quarter of 2019 from 20,011,346.06 NGN Million in the fourth quarter of 2018.
When disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption. The most important determinant of consumer spending is disposable income .Without it, no one would have the funds to buy the things they need.
As income increases so does demand. If manufacturers ramp up to meet demand, they create jobs. Worker earnings increase, spending increases as well. It's a virtuous progression leading to ongoing economic growth.
Apparently, the presence of various non-state tax-collecting bodies has systematically affected the erosion of this disposable income. A lot of legal and illegal taxes diminish these funds. A very visible scenario is a tricycle operator earning about four thousand naira per day. After paying for local government tickets, he has to pay to the union and possibly some “area boys” as well. The payment of utilities and all other necessities also further diminishes what becomes the disposable income.
However, expenditure patterns are seriously tilted towards the availability of this disposable income. The patterns of spending arising out of Nigerian households’ commercially available income have been shifting considerably over the past two decades. Statistics indicated that the average Nigerian spent about 64.4% of his commercially available disposable income on food and non-alcoholic beverages. Spending items such as communication (0.1%), education (0.2%), and health (1.4%) accounted for a small part of spending by that measure.
Also with food inflation at almost 15%, there are serious concerns on the sustainability of the
common man’s disposable income. Housing and utilities inflation also saw an increase too. Where basic necessities like food and shelter is expensive, definitely, the disposable income would be eroded.
In order to boost disposable income, government needs to seriously reconsider the recent increment of Value Added Taxes (VAT). Instead of increasing VAT, government could seek to increase the tax base instead with policies targeted at capturing more business and individual into net.
Also, the illegal taxes collected from various non-governmental bodies needs to be seriously looked into. Likewise, various measures to curb unlawful extortion by some law enforcement officials need serious attention.
Extensively, boosting disposable income in Nigeria could also be realistic by reducing the administrative delays and authorizations for obtaining licenses for business as well as approvals for business purposes. This would increase business activities and also allow for economic activities.
Furthermore, it is also paramount that capacity building programmes are established and executed regarding business management. This would allow for more rational business decisions and execution to expand the income base invariably.