The mid-year budgetary review proposals presented to Parliament on Monday by Finance Minister Ken Ofori Atta, if nothing else, vividly illustrate how complex the task of running Ghana’s fiscal affairs is. Amid substantial revenue shortfalls and the need to keep the fiscal deficit below five percent as demanded now by binding legislation, there is also the need to use public spending to boost economic growth even as global growth slows around us. There is also the economic need to provide socio-economic infrastructure and an enabling environment that allows Ghana’s private sector to be internationally competitive even as there is the political need to protect spending on social interventions that can keep the majority of the electorate happy.
Throw in the effects of cedi depreciation, the volatility of the foreign portfolio investors who finance government’s fiscal deficit and the ups and downs of the various business markets and there is little reason to truly envy the Finance Minister his job, despite the mouthwatering perks that come with it.
Indeed, the complexities of Ghana’s economy as it is constituted currently makes even a holistic assessment of the Finance Minister’s economic management performance a somewhat difficult task.
However, some aspects of that performance shine through clearly. One of them is the effort to reform Ghana’s tax framework and the manner in which it is administered; and this is straight forward not because of how good or how bad that performance has been. On the contrary what is clear is the instability of tax policy in Ghana currently. Simply put, taxes are changing by the month, both in terms of scope and tax rate. For instance, the luxury vehicle tax that as lasted all of 12 months before being withdrawn.
Indeed, government seems continuously caught between the desire to reduce the cost of doing business by loosening the fiscal regime, and the need to face economic exigencies of increasing tax revenues which, at 12 percent of Gross Domestic Product are barely half the average for our lower middle-income peers. Thus, government slashes the benchmark import values used to compute payable import duties in April, and just a couple of months later, is forced to increase petrol taxes and communications taxes in the face of the resultant tax revenue shortfalls.
Interestingly, after all the seemingly continuous tax regime changes that have been implemented over the past two years, government has found itself incurring a tax revenue shortfall for the first half of 2019 that, at 9.5 percent, is almost exactly the same as the shortfall it incurred in 2017, the first year in office of the current administration. Effectively all the tax regime instability businesses and households are having to face have not changed the fortunes of the public purse.
We therefore suggest that government pauses, takes a breath and works out a comprehensive holistic tax regime based on clear cut fiscal objectives and quantitative targets. Loudly announced new “progressive” tax reforms that do not achieve government’s objectives but make tax payers dizzy in trying to keep up with the changes are not ultimately helpful. Let us have more stability and better fiscal outcomes.