Dr Opoku-Afari calls for fiscal consolidation involving revenue-raising and expenditure-rationalization policies
First Deputy Governor of the Bank of Ghana (BoG), Dr Maxwell Opoku-Afari has said there is the need for a kind of fiscal consolidation that involves both revenue-raising measures and expenditure-rationalization policies.
According to the First Deputy Governor, this is necessary for the reduction of government’s overall fiscal deficit to sustainable levels and achieving structural fiscal balance over the medium term.
Delivering a public lecture at the University of Ghana’s Business School (UGBS) on the topic Re-thinking Development Financing: Macroeconomic management when the Love is gone, Dr Opoku-Afari averred there is the need to enhance the efficiency of public spending and expenditure rationalization arguing that no matter the efforts made towards enhancing domestic revenue mobilization, the country will continue to experience chronic fiscal deficits and a growing debt burden, if government does not take the appropriate steps to rationalize expenditure levels.
“We therefore need to identify areas where spending is either wasteful, inefficient or does not deliver value for money, with the view to curtailing or eliminating them completely. Negotiation of government projects and contracts must be effectively handled and scrutinized to ensure that losses are minimized, and facilitate value for money considerations.
“Another reason for efficiency in public spending is the fact that the level of tax compliance depends on citizen’s perception of the utilization of such taxes. Thus, their acceptance and compliance are tied to the effective use of these resources. When citizens perceive that the tax system does not inure to their benefits, they are likely to want to evade or not comply with such tax obligations. But where revenues are used to finance productive spending programs, they are more likely to accept their tax obligations,” said Dr Opoku-Afari.
Speaking further on raising revenues for government, the First Deputy Governor remarked that a tax revenue to Gross Domestic Product (GDP) ratio of 25 percent is needed to give fiscal comfort to government to be able to undertake development projects in the country.
Making reference to the Revenue Assurance and Compliance Enforcement (RACE) Initiative, which is envisioned as a major transformational effort by the Government to block leakages and increase domestic revenue mobilization, widen the tax net, and ensure compliance with tax obligations, Dr Opoku-Afari noted the initiative If implemented effectively and enforced, will enhance domestic revenue mobilization and drive the country towards attaining the desired 25 percent tax revenue to GDP ratio.
