When government spends, who pays?

Every year, as the federal government announces its budget, Nigerians are greeted with familiar promises: ambitious projects, new infrastructure, social programmes, and funding for critical sectors. These plans often sound reassuring, giving the impression that government spending will lift the economy and ease hardship. But as the economist Henry Hazlitt once asked in Economics in One Lesson, when government spends, who really pays?

At first glance, public spending seems like a blessing. Roads are built, salaries are paid, and contracts are awarded. People see visible activity and assume progress is being made. Yet what is seen hides what is unseen. Every naira spent by the government must come from somewhere, and in Nigeria’s case, that “somewhere” has its peculiarities.

Nigeria’s government finances its spending through four main sources: taxation, borrowing, oil revenue, and money creation. Of these, oil has long been the lifeline. For decades, oil exports have accounted for most of the government’s income, allowing it to spend without heavily taxing citizens. But as oil prices fluctuate and production declines, that comfort is fading. The government is now turning increasingly to taxes and borrowing to fill the gap, and both come with real costs.

When the government taxes, it takes resources from individuals and businesses who could have used that money to invest, save, or expand. The new wave of tax reforms and enforcement, from value-added tax (VAT) expansions to digital service taxes and stricter compliance efforts, is often justified as necessary to “broaden the tax base.” However, higher or more complex taxes can stifle enterprise, discourage risk-taking, and make it harder for small businesses to grow. When businesses struggle to stay afloat under rising levies, workers lose jobs, consumers pay more, and innovation slows.

Borrowing appears easier. Unlike taxes, it does not take money directly from people’s pockets. But government borrowing only shifts the burden to the future. Nigeria’s debt servicing now consumes a large share of national revenue, nearly as much as the government earns. What this means is that tomorrow’s taxpayers will pay for today’s comfort, with interest. Each new loan is a silent promise that citizens, or their children, will foot the bill later.

Then there is the most deceptive method of all: printing money, or in Nigeria’s case, “ways and means” financing, where the Central Bank lends directly to the government. It may look like a harmless way to plug short-term budget gaps, but it quietly fuels inflation. The more money the government creates without corresponding production, the less value each naira holds. Prices rise, savings lose worth, and the poor, whose incomes cannot keep up, suffer the most. Inflation, as Hazlitt warned, is taxation by stealth.

In all these cases, one truth remains: government spending is never free. Whether through taxes that take directly, borrowing that postpones the pain, or inflation that erodes purchasing power, the people always pay. The illusion of costless government generosity is sustained only because the real costs are delayed or hidden.

A responsible government should therefore resist the urge to do what private enterprise can do better. Building and running refineries, managing airlines, or operating hotels are not the natural duties of the state. The government’s role should be to provide the framework: security, rule of law, infrastructure, and stable monetary policy that allows private actors to produce, trade, and innovate. Every naira diverted to ventures that private firms could handle more efficiently is a naira taken from citizens who could have used it to create real value.

As we look toward 2026 and await a new budget, it is important to remember that every government naira spent is first taken from someone’s pocket, either today or tomorrow. Nigeria does not need more spending; it needs smarter spending. Projects should create value rather than absorb funds. Policies should encourage enterprise, not stifle it. A good budget should focus on building the conditions that let people prosper on their own terms.

When the government spends, someone always pays. The real question is who, when, and how much.

. Akintunde Paul writes from Lagos

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