Ghana’s Mid-Year Budget Review: The Politics and Reality

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Indeed raising taxes is the least expected option from the NPP government not because it’s the worst of the options but because of politics. Dr. Bawumia in the run up to the elections said it’s a lazy man”s approach to managing the economy. And so it will be ironical for the government to go back on their words.

Please permit me to quote Dr. Bawumia directly: “The NDC if given the opportunity would even tax the air we breathe, because they are broke out of the mismanaging of the economy and are taxing anything and everything in sight.”

“My message to the John Mahama government is to focus on growing the economy, focus on production and the economy will grow.”

“The goal of the NPP is that, we are going to make Ghana the most business friendly and the most people friendly economy in Africa. There will be no import duty on raw materials. We would encourage people to bring in the raw materials and let them produce and give employment and we will get income tax from the employment and let them make profit; and when profits are made, we will get corporate tax from the profit, and so rather killing the business at the port like the NDC is doing, we will let them come in and we will make profits.”

“We are a party of production and not taxation and this is a philosophical difference between the NPP and the NDC.” – Dr. Bawumia -June-6-2016

For the Vice President, Dr. Bawumia and his likes, growing up the economy is to give freebies in the form of taxes, but as far as Ghana is concerned, this concept is nothing but theory. Yes, I believe in the “focus on production and the economy will grow” concept of the NPP party, but the issue is about the “How” to achieving this end.

The Vice president’s concept is borne out of “Tax Multiplier Effect Theory”. It is suggested for example that a tax cut of 1% will induce 3.17% economic growth, and that 1% increase in real GDP would increase real tax revenue by 0.2%. What it means is that 3.2% increase in economic growth would increase real tax revenue by 0.64%

You would clearly see that we are not getting up to the 1% given out as a tax cut. Again, there is no guarantee that we would be able to achieve the expected 3.2% growth. This means that growth in real GDP is not strong enough to pull the growth rate in real tax revenue.

My experience with some entrepreneurs in Ghana is that they are very exploitative, they are not agents of wealth redistribution. Most times, the expatriate firms also repatriate their profits without retaining profits for expansion in their host countries. This is partly the reason why there is always pressure on the cedi as against the major trading currencies.

Comparatively, our current tax regime is not bad at all, that’s to say it is not extraordinarily high, in relation to other countries. It is a fact that developed countries tax heavily on incomes, and and developing countries on trade and consumption. (To change this trend requires policy initiative suggested in point two below.)

Historically Ghana like the rest of the world has moved from as high as 65% in the 1980s, 32% in 2001 to 25% in 2006. In the latter instance, corporate income tax revenue dropped by 3.1% while real GDP growth rose by 0.3%. And it even fell from 6.2% in 2006 to 4.3% in 2007. And so you see history does not support tax cuts for productivity concept

The Only plausible options are: 1. The widening of or the tax base-broadening concept. That takes care of redistribution of wealth, the burden wouldn’t be on just the 20% of the formal sector who are judiciously taxed.

2. And an intentional government industrial intervention policies are therefore the way to go to ensuring increased productivity/high economic growth. Look around the world and one would find that there is no country in this world which has developed industrially without direct government interventions.

While taxation is not the only source of government revenue, it is by and large the most important source in nearly all countries. A country that begs for bread is not not worth anybody”s respect. I shoulder to wonder about the possibility of president Nana Akufo-Addo”s mantra of Ghana beyond aid if weare unable to generate enough revenue from within. For example, 321 million cedis was the budget for local government (district development fund) in the year 2017. 85% of the amount was to be funded by donors and a counterpart funding of the rest by Ghana. The surprising point of interest is that Ghana could not budget for her part. And to make matters worse, the district development fund was in arrears to the tune of $ 40 million. That’s how dare the situation we find ourselves.

Unfortunately, it seems the government has buckle out on the grounds of morality, inefficiency, and corruption which is very endemic in our societies, particularly in the public sector. It’s very disheartening to hear Auditor general’s report discussed by the public accounts committee. We all have to be citizens and vigilantes as well. We can’t continue like this. Unfortunately, some people like Kwaku Baako and the like,  want us to believe that a breach of procurement law is nothing much to be worried about. I then ask the question why did we pass the laws?

By Henry Adjei Boadi

Ghana News Online

The primary function of is to gather, process and distribute news about Ghana and Africa to the World. To serve as a News Agency with the mandate to present complete, in-depth objective and impartial information, news, and features rooted in investigative journalism.

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