2023 Budget – It’s a ‘Pro Austerity’, but let’s get it right
Finance Minister goes to Parliament to present what is arguably the most important budget in our recent history today.
The economy is tumbling, Investor confidence is low, banks are reluctant to give credit, inflation is skyrocketing and the Cedi has all but lost its core function – as a ‘better’ store of value.
There’s no doubt this is going to be an ‘austerity’ budget as the IMF wants to see a clear path to debt sustainability before granting any facility. In our bid to get the economy on track with the IMF support, this budget should be heavy on ‘Expenditure cuts’. It is difficult to weigh in on this or bet for heavy austerity measures considering this is a government that’s so ‘Pro Social interventions’. But, we need to face the realities and rather opt for what will revive us and pump new blood and fresh air into our system – We need it!
So, this is what I think;
Some government flagship programs may [should] be suspended, cancelled or face cuts. Here we need costs benefits analysis and projects like PFJ, 1V1D, 1C1W, etc.. could be suspended at least for now. PFJ should be the lifeline at these hard times, but I doubt it has achieved anything close to this tag.
Time to be bold and go for ‘means testing’ for the free senior high. Government spends over GHC2.4bn on FSHS, but we equally know some parents can support. We should introduce a means testing mechanism to target only the ‘very poor’ to free fiscal space. Surely, it is a good initiative that has to be maintained, but this will depend on Ghanaians ‘owning’ it and paying towards its upkeep. Government alone cannot do it. FACT!
It’s a no-brainer that Nursing and Teacher trainee allowances should be scrapped. These are tertiary students and they should be moved onto the students’ loan scheme so they receive enough and timely support for their education whilst freeing an important fiscal space needed for the bailout.
Government needs to make some sacrifices. The 30% cut in appointees’ salaries is welcoming but surely, the fiscal gap is far bigger to be filled with this alone. It’s time to merge some government agencies and ministries. It’s hard, but we need to face the reality that ‘Ghana is broke’. Government could go further and look at cutting the staffing levels too. Could a single deputy be enough at places where we have two or three? Time to do a proper system audit, look at job demands and take critical (but unpopular) decisions.
The budget should be heavy on austerities but it shouldn’t come at the expense of social protections. I do not expect cuts in education or healthcare, so let’s keep things as they are, at least for now.
On revenue, we need to demonstrate that we are a country working to take our own destiny and not to be dictated to by the ‘Bretton Woods’. Aside expenditure cuts, revenue mobilization is crucial and will determine (to a large extend) what we get from the IMF, when, and how we even get out to restore the needed macros stabilities.
I personally DO NOT expect any new taxes. However, I expect the government to introduce serious measures to rope in needed revenue from the existing tax handles.
Time to get serious on property taxes. There’s no seriousness on implementing the right reforms for administering property taxation. This, for now, represents the biggest opportunity for revenue generation in the country.
I would be happy to see an additional tax band of say 35% or 40% on higher incomes. This will be a progressive measure if well designed at these trying times. People will oppose it, but in hard times, we don’t tax the poor more (as being done), but an additional tax band on higher incomes will be a better way to burden share. I am for it!
The government must increase the tax-free amount. Currently it’s GHC365 a month. This was introduced in a period when inflation was wobbling around 8%. With inflation well over 60%, in ideal world (all thing being equal) I expect this figure to be over a GHC1000, however, being realistic, I think they may put it around GHC450 – GHC500 range. This will not be enough at this hard time, but I think this is how far the government can go.
I want E-levy cancelled, but I also do think we need revenue and things are very tight, so whilst my heart is strictly against it for its unwarranted economic distortions, I see a reduction to 1%. Some analysts are calling for 0.25%. I do not know the basis for this figure, but I don’t see the government bringing it that low. So, we may see a figure anywhere between 0.5% and 1%.
Digital service tax must be introduced. Kenya has introduced this and are enjoying with about 142 companies captured and a revenue of almost $5m raised since beginning of the year. Ghana should do same, as luckily for us, we are not part of the OECD inclusive framework. We have the license to go solo on taxing the digital economy. Time to go hard on the tech giants too and the digital market players. It should be ‘operation leave no penny behind’ on taxes this time round.
I can see road toll smiling and finding its way back to greet already ‘angry’ Ghanaians. Although I will rather prefer a ‘Road Tax System’ where every car pays and not the ones that crosses the toll booth. I think the economic tensions will not allow the managers to go on exploratory missions on taxation, so we leave it here and wait for Ken to speak!
Alex Ampaabeng, Ph.D.
Tax and Fiscal Policy Analyst