Fiscal policy is the collective term for the taxing and spending actions of governments. There are two types: Expansionary/Contractionary fiscal policy. The fiscal policy in two ways: Government spending and tax policy will generate either a budget surplus or a deficit which influenced Capital markets, which will in turn mean that the government sector will either contribute towards financing investment or “crowd out” private investment.
There has been a growing concern on the role of fiscal policy on the output and input of manufacturing industry in Nigeria, even as government embarked on several policies aimed at improving the growth of Nigerian economy. The real sector’s contribution to the economy and capacity utilization of the sector though the Kaldor’s first law defined manufacturing sector as the engine of growth of the economy.
Some analysts further defined Manufacturing sector as those industries which are involved in the manufacturing and processing of items and indulge or give free rein in either the creation of new commodities or in value addition, manufacturing sector accounts for a significant share of the industrial sector in developed countries.
“The final products can either serve as finished goods for sale to customers or as intermediate goods used in the production process. Loto, (2012) refers to manufacturing sector as an avenue for increasing productivity in relation to import replacement and export expansion, creating foreign exchange earning capacity, raising employment and per capita income which causes unrepeatable consumption pattern. Also Mbelede (2012) opined that manufacturing sector is involved in the process of adding value to raw materials by turning them into products.
“Thus, manufacturing industries is the key variable in an economy and motivates conversion of raw material into finished goods which Charles (2012), said manufacturing industries can create employment which helps to boost agriculture and diversify the economy on the process of helping the nation to increase its foreign exchange earnings.
He pointed out that manufacturing industries came into being with the occurrence of technological and socioeconomic transformations in the Western countries in the 18th-19th centuries. This period was widely known as industrial revolution. It all began in Britain and replaced the labour intensive textile production with mechanization and use of fuels.
“Manufacturing sector are categorized into engineering sector, construction sector, electronics sector, chemical sector, energy sector, textile sector, food and beverage sector, metal-working sector, plastic sector, transport and telecommunication sector (CBN, 2012).
In recent times, some manufacturing industries in Nigeria have been characterized by declining productivity rate, by extension employment generation, which is caused largely by inadequate electricity supply, smuggling of foreign products into the country, trade liberalisation, globalisation, high exchange rate, and low government expenditure.
The report therefore, disclosed that the slow performance of manufacturing sector in Nigeria is mainly due to massive importation of finished goods, inadequate financial support and other exogenous variables which has resulted in the reduction in capacity utilization and output of the manufacturing sector of the economy.
The report quotes Peter and Simeon (2011) saying fiscal policy as the process of government management of the economy through the manipulation of its income and expenditure and to achieve certain desired macroeconomic objectives. Also Central Bank of Nigeria (2011) said fiscal policy as the use of government expenditure and revenue collection through tax and amount of government spending to influence the economy. Samuelson and Nordhaus (2002) also defined fiscal policy as a government’s program with respect to the purchase of goods and services and spending on the transfer of payments, and as well the amount and type of taxes.
In finance, fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. The two main instruments of fiscal policy are government taxation and expenditure. Changes in the level and composition of taxation and government spending can affect aggregate demand and the level of economic activity; the pattern of resource allocation; and the distribution of income. This implies that Fiscal policy refers to use of the government budget to influence economic activities. Geoff (2012) contended that fiscal policy involves the use of government spending, taxation and borrowing to affect the level and growth of aggregate demand, output and jobs creation. It is the government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates and government spending, in an effort to control the economy. Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation’s economy. Various researchers have submitted that fiscal policy goals include the following: increasing employment opportunities; attaining full employment; stabilization of domestic prices; promoting economic growth and development through industrialization; achieving equity in income redistribution; achieving stable exchange rate; and increasing the rate of investment in the. Again, Afam (2012) maintained that fiscal policy is the aspect of government policy dealing with the raising of revenue through taxation and other sources and deciding on the level and pattern of expenditure for the aim of influencing economic activities.
In nutshell fiscal policy can be seen as the government policy used to achieve full employment, stability of price level, sustainable economic growth and external balance and its instrument is the main instrument used in achieving macroeconomic targets. Nigeria for the past decades has maintained large fiscal policy measures in other to influence economic growth and activities.
But the pertinent question is: has fiscal policy instrument stabilized the growth rate of manufacturing sector through its contribution to GDP? In further investigate how fiscal policy affect manufacturing sector, how these policy relate to manufacturing sector output and performance. The effects of fiscal policy on capacity utilization and on Manufacturing Sector Output in recent time, various experts have suggested in their words of wisdom that fiscal policy has an important role in the growth of Nigerian economy through manufacturing sector output and that high growth rates are found in the economy where the manufacturing sector share in GDP is increasing. Some experts also said that the fiscal policy in Nigeria was not enough to increase growth rate of manufacturing sector output. This may be as a result of inadequate funding of manufacturing sector, either due to instability of Nigerian capital market or the culture of Nigerian deposit money bank not to lend short term investment and the long term fund is not accessible because of high interest rate spread and credit guidelines.
Eze was of the opinion that external finance is very important for the manufacturing sector to contribute a reasonable percentage to the growth of Nigerian economy.
“Impact of Fiscal Policy on Manufacturing Sector Capacity Utilization Fiscal policy is the government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates and government spending, in an effort to control the economy. While, Capacity utilization refers to the extent to which an enterprise or a nation actually uses its installed productive capacity.
Furthermore, the success of fiscal policy in promoting manufacturing sector depends on the level of public revenue available, the direction of public expenditure and its implementation.
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