Mid-year budget review: Why Ofori-Atta may plead for more money

The glee with which Finance Minister Ken Ofori-Atta announced a bundle of tax reliefs in his maiden budget in 2017 will be missing today wh...

The glee with which Finance Minister Ken Ofori-Atta announced a bundle of tax reliefs in his maiden budget in 2017 will be missing today when he delivers his 2019 mid-year budget. Government’s underperforming domestic revenue has provided enough headache rather than something to smile about.

The weight of expectations on Akufo-Addo’s government is enormous — a tall list of campaign promises to fulfil. The few that have been fulfilled have taken a toll on government resources. For instance, since the inception of the Free SHS in 2017, the flagship policy has consumed at least GHS3.3 billion; a figure which will continue to rise.

The pack of taxes that were repealed or reviewed in the 2017 budget was supposed to provide reliefs to Ghanaians. Government’s mantra in that particular budget was to shift the focus of the economy from taxation to production.

But three or so years down the line, the vision of government is far from being realised. The poor performance of domestic revenue had seen Ken-Ofori-Atta attempt some rather crafty way of raising more revenue through either new or tweaks to existing taxes.

Some of these new measures include the conversion of 2.5 percent NHIL and GETFund levies into straight levies. But undoubtedly, the most unpopular one was the tax on the so-called luxury vehicle which is highly likely to be reviewed or scrapped by the Minister today.

An election to win

But today, the Finance Minister will have a more difficult task than pulling a rabbit from the hat. Last month, Mr. Ofori-Atta had to change the top leadership of the Ghana Revenue Authority, the revenue collecting firm. More than 1,500 other staff too, were reshuffled in a rather frantic efforts to get revenue collection to improve.

Under normal circumstances, as we have seen under Mr. Ofori-Atta when the government is unable to collect enough domestic revenue, the expenditure is cut in line with the fiscal consolidation agenda.

But with an election to win in barely 16 months, cutting critical expenditure is not an option. It is little wonder that the Bank of Ghana Governor Dr. Ernest Addison in his July MPC meeting noted with concern how the government keeps spending although revenue collection remains slow.




Ken Ofori Atta StunningIn his most recent budget, the Finance Minister is expected to collect GHS45.2 billion in taxes this year. But in order to cater for its wages and salaries, pay interest on borrowings and make transfers to the statutory funds like GETFund, District Assemblies Common Fund (DACF), etc, the government will need at least GHS51.8 billion.

Assuming the government is able to achieve this revenue target, it will still not be enough to cater for these three earmarked expenditure items indicated in the budget. Thus, government has had to resort to other sources in order to meet even these three items not to mention capital expenditure and goods and services.

In a fix

Added to the already tight corner government finds itself is the cost of the financial sector clean-up and the expensive agreements signed with independent power producers.

The government has so far had to cough up more than GHS10 billion just to rescue banks that were failing. On the other hand, government is also paying more than GHS720 million every month to independent power producers for power generated.

In all of these financial commitments, the Finance Minister can do very little about them. The pressure exerted on the public purse is massive. The resultant effect is that government’s policies are choked and those who can protest, like the Nations Builders Corps (NABCO) will pour onto the streets to demand payments of their allowances.

And contractors will also vent their anger and threaten to lock up schools they had financed for which government owes them billions of cedis.

Delicate balancing act

For the Akufo-Addo re-election bid to succeed, it will need to find money to keep policies like the Free SHS, Planting for Food and Jobs, Rearing for Food and Jobs, NABCO, One District-One Factory, One Village-One Dam, and its expensive promises up and running.

While the rebasing of the economy brought down the debt to GDP ratio to about 56 percent, this is only illusionary as it does little to our ability to repay our debts with the nominal public debt figure estimated to be around GHS200 billion as at May 2019.

Borrowing more has its own consequences. This year, the interest on our public debt is close to GHS19 billion. Anything more could heap more pressure on the already troubled public purse.

Much as the Finance Minister would hate to admit, the mantra of “shifting the focus of the economy from taxation to production” is not bearing any juicy fruits – perhaps more time is needed.

The low hanging fruits available will be to explore tax policies that can yield results almost immediately. This clearly will be a tough sell but the Finance Minister would just get on with it and justify the increase in taxes with more spending on public infrastructure.

While his policies to be announced today in Parliament is a careful act to attempt balancing government’s books, he is also extremely careful not to leave Akufo-Addo’s re-election bid come 2020 in the balance.

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