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Curbing the fiscal deficit in the coming election year

November 1, 2019
in Uncategorized
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On Wednesday, speaking at the 2019 Ghana Economic Forum, President Nana Akufo-Addo himself added his voice to the rising number of top tier government officials who have promised that next year, Ghana will buck the long-standing trend of incurring inordinate fiscal deficits during election years, as a result of efforts to win over the support of voters through increased public spending.

While this latest assurance from the President itself is encouraging this newspaper is taking it under advisement; after all his predecessors in office have given similar assurances under similar circumstances but gone on to run up fiscal deficits far larger than the budgetary targets. Indeed, the immediate past President John Dramani Mahama repeatedly gave such personal assurances in the run up to the 2016 election, but even with the International Monetary Fund breathing down his neck, his administration still managed to churn up a fiscal deficit that was over one and a half times the target.

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To be sure, the incumbent administration has achieved a much better track record in this regard and has also legislated a five percent cap on the annual fiscal deficit too.

However, under Ghana’s current economic circumstances, balancing the 2020 election year budget will require a veritable juggling act.

Most of the incumbent government’s ambitious programmes are running well behind schedule as government has tried to compromise the conflicting objectives of executing them and continuing with direly needed fiscal consolidation. But in an election year, government will be sorely tempted to play catch up rather than let them fall further behind by the times the votes are cast.

Instructively, Finance Minister Ken Ofori Atta continues to point out that the problem is with insufficient revenue collection rather than excessive spending and he is largely correct. But while Ghana’s tax to Gross Domestic Product ratio of just about 12 percent is clearly too low, when compared with the 25 percent average for its middle income peers, it is highly unlikely that government will be willing to increase taxes – whether income or consumption taxes – ahead of the general elections; more so just after the telecoms industry has publicly blamed recent tax hikes for the higher tariffs its customers are now having to pay.

Similarly, government will be reluctant to fully implement the tax administration enhancement measures it has drawn up – such as an insistence on a tax identification number before citizens can access essential public goods and services with a crucial vote looming.

Understanding these constraints, this newspaper therefore fully supports the ongoing efforts of Ghana Revenue Authority to recover the GHc2.7 billion it is currently being owed; indeed, we suggest that this strategy of pursuing debts owed to the state be vigorously implemented.

Those debts are not just related to uncollected taxes. For instance, bank chieftains found liable financially for the collapse of their respective banks should be made to pay up so that government can recoup some of the cost of issuing resolution bonds to protect depositors.

This strategy is a pragmatic one as government enters a year when it needs all the revenues it can get in order to finance increased public spending but will be unwilling to irk the majority of the electorate through increased taxes and enhanced tax collection.

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