When Finance Minister, Ken Ofori-Atta, made his maiden appearance on the floor of Parliament last year to present the 2017 budget, he came bearing tax-cut goodies – partially fulfilling one of his party’s campaign promises of doing away with so-called ‘nuisance taxes’.
In all, 11 tax measures were introduced in what was called the ‘Asempa Budget’ – which translates to the Good News Budget. This move denied government about a billion cedis in revenue, but it insisted this was a necessary evil to shift the focus from taxation to production.
In his first year as Finance Minister, Mr. Ofori-Atta saw government revenue decline significantly…forcing the minister to cut government’s planned expenditure to keep the budget on track.
Revenue performance has not seen any improvement since then; and it is likely that the GH₵51 billion target announced for the 2018 fiscal year is not going to happen, as the first four months of this year have seen revenue underperform.
Having revenue underperform for two years running is enough to drive any government to desperation, especially one that promised a raft of ambitious social goods and services which require billions to deliver.
Though government did cut expenditure to make up for revenue shortfall in 2017, it might not want to do that in 2018 -considering the fact such expenditure cuts are already compounded by the cap placed on transfers to the statutory funds.
Already, there is a realisation that ‘shifting focus from taxation to production’ requires a more sustainable approach.
Caught in the dilemma of introducing new taxes or cutting its expenditure for the second year running, Mr. Ofori-Atta will attempt a balance of the two options with neither seeming plausible enough an outright solution.
Neither solution is popular and will come with some consequences, but there are not that many options available to government – especially considering the fact it also has its eyes on the next election in 2020 when its mandate will be vetted by the electorate.
A pledge to Washington
Last month, when a delegation of the IMF concluded its visit to Ghana, it issued a statement which given the benefit of hindsight now makes more sense regarding government’s approach to the current fiscal situation.
“Government’s commitment to achieving the end-year fiscal targets is encouraging. Available fiscal data suggest an increase in government spending—mainly due to frontloading of capital spending and goods and services—while revenue underperformed in the first four months of the year.
“Thus, we welcome government’s intention to present a balanced and comprehensive fiscal package to Parliament during the mid-year budget review in July. Such a package will help meet the fiscal objectives and support implementation of government’s development agenda,” said Ms. Annalisa Fedelino, leader of the IMF delegation.
The scorecard of Mr. Ofori-Atta’s performance is impressive considering the challenging economy he inherited from the previous administration – which almost threw the IMF bailout programme out of gear with their near double-digit budget deficit.
Indeed, given the opportunity to choose between growth and fiscal consolidation Mr. Ofori-Atta wanted a balance; although growth would be more welcome and confirm his government’s superior economic management skills.
Growth for last year was very impressive at 8.5 percent from a paltry 3.6 percent recorded in 2016. Deficit, too, was encouraging at about 6 percent from about 10 percent the previous year. Cedi depreciation had seen some stability.
Revenue performance remains the only blot on Mr. Ofori-Atta’s scorecard.
The lowest hanging fruit will be to deepen existing and proven tax revenue measures like VAT to finance some of government’s expenditure. But it will be tough for a man who has consistently insisted on broadening the tax base using other means, including technology.
Such other means require patience to bear fruit. For a man in a hurry, patience right now might seem more a vice rather than virtue. Faced with such a make or break decision, Mr. Ofori-Atta’s decision will not please anyone – not even himself.