Mid-Year Budget Review And Matters Arising
The 2018 mid-year budget review will in doubt go down in history as one of the mid-year budgets that has generated much interest, controversy, suspense, discussion and anxiety from the public. The mid-year budget assessed the 2018 budget which was under the theme ‘‘putting Ghana back to work''. Having travelled six months into the one year budget cycle, Ghanaians can now judge whether Ghana is being put back to work or not. Undoubtedly, there have been some remarkable achievements. The fiscal deficit ebbed from 9.3 percent as at the end of 2016 to 5.9 percent and provisional GDP grew by 6.8 percent for the first quarter of 2018 compared to 6.7 percent for the same period last year. Inflation has declined from 11.8 percent in December 2017 to 10 percent in June 2018. Trade accounts recorded a surplus of $1.35 billion as against a surplus of $1.27 billion. The cedi appreciated by 2.6 percent against the Euro but depreciated by about 8 percent during the same period last year.
On the contrary, gross International reserves declined marginally from $8.1 billion thus 4.6 months of import in May 2017 to $7.8 billion, an equivalent of 4.2 months of import by the end of May 2018. Revenue and expenditure targets were missed although government benchmark for gold price was less than current price of gold. The budget statement also paints a bleak picture about the state of Ghana’s economy. Wages and salaries consumed 59 percent of the provisional actual tax revenue and Interest payments alone consumed 41 percent of tax revenues. Technically, wages, salary and interest payments for the period under review consumed more than total tax revenues.
The Minister also offered some piecemeal recommendations which were neither detailed nor resolute. For instance, the conversion of the National Health Insurance (NHI) and the GETFUND, VAT rate to straight levies is a subtle way of taxing the people. VAT of 12.5 percent is normally charged on value addition and that of 2.5 percent for NHI and 2.5 percent of GETFUND are charged at the port and on services. Therefore the flat rate levy across all commodities is likely to increase the prices of goods and worsen the plight of Ghanaians. The imposition of luxury vehicle tax on vehicles with capacity of 3.0 litres and above is an interesting development .That policy tends to shift focus from the average person to the rich in society and may help in the redistribution of income, however, majority of such cars are in the hands of government officials at the various MMDAs. Such officials may not pay for such taxes or compel their offices to pay.
The other category of Ghanaians that use such luxury vehicles are business captains and they may pass on the cost as an expense to the final consumer. The Finance Minister indicated plans to review personal income tax to include an additional threshold of ten thousand Ghana Cedis and above per month at a rate of 35 percent. This may bridge the income between the rich and the poor, nevertheless, most of the targeted people are already tax payers so such a policy only amount to overburdening the tax payer.
In the main 2018 budget, taxes were abolished and some electricity tariff reduced. By abolishing what is termed nuisance taxes, government lost potential revenue of GH¢800 million. One is yet to see the translation of such reductions into any meaningful economic benefit. On the free fall of the cedi, the Minister could not give any pragmatic answers as to how to arrest the fall and that signals a state of hopelessness. The reduced debt to GDP ratio from 73.1 percent as at the end of 2016 to 69.8 percent is inimical to the economy especially where it is a heartbeat away from the distress level threshold of 70 percent.
While we commend government for achieving some levels of success in the management of the economy, it is important for all Ghanaians to contribute towards putting Ghana back to work by helping to address the ills in the economy.
BY YAW OHEMENG KYEI, A FINANCIAL ANALYST.
On the contrary, gross International reserves declined marginally from $8.1 billion thus 4.6 months of import in May 2017 to $7.8 billion, an equivalent of 4.2 months of import by the end of May 2018. Revenue and expenditure targets were missed although government benchmark for gold price was less than current price of gold. The budget statement also paints a bleak picture about the state of Ghana’s economy. Wages and salaries consumed 59 percent of the provisional actual tax revenue and Interest payments alone consumed 41 percent of tax revenues. Technically, wages, salary and interest payments for the period under review consumed more than total tax revenues.
The Minister also offered some piecemeal recommendations which were neither detailed nor resolute. For instance, the conversion of the National Health Insurance (NHI) and the GETFUND, VAT rate to straight levies is a subtle way of taxing the people. VAT of 12.5 percent is normally charged on value addition and that of 2.5 percent for NHI and 2.5 percent of GETFUND are charged at the port and on services. Therefore the flat rate levy across all commodities is likely to increase the prices of goods and worsen the plight of Ghanaians. The imposition of luxury vehicle tax on vehicles with capacity of 3.0 litres and above is an interesting development .That policy tends to shift focus from the average person to the rich in society and may help in the redistribution of income, however, majority of such cars are in the hands of government officials at the various MMDAs. Such officials may not pay for such taxes or compel their offices to pay.
The other category of Ghanaians that use such luxury vehicles are business captains and they may pass on the cost as an expense to the final consumer. The Finance Minister indicated plans to review personal income tax to include an additional threshold of ten thousand Ghana Cedis and above per month at a rate of 35 percent. This may bridge the income between the rich and the poor, nevertheless, most of the targeted people are already tax payers so such a policy only amount to overburdening the tax payer.
In the main 2018 budget, taxes were abolished and some electricity tariff reduced. By abolishing what is termed nuisance taxes, government lost potential revenue of GH¢800 million. One is yet to see the translation of such reductions into any meaningful economic benefit. On the free fall of the cedi, the Minister could not give any pragmatic answers as to how to arrest the fall and that signals a state of hopelessness. The reduced debt to GDP ratio from 73.1 percent as at the end of 2016 to 69.8 percent is inimical to the economy especially where it is a heartbeat away from the distress level threshold of 70 percent.
While we commend government for achieving some levels of success in the management of the economy, it is important for all Ghanaians to contribute towards putting Ghana back to work by helping to address the ills in the economy.
BY YAW OHEMENG KYEI, A FINANCIAL ANALYST.
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