Fiscal policy by the government is the best option now

Stephen AMOAH (Dr)

Two major macroeconomic policies that have strong correlation with the standard of living in every country including Ghana are the monetary policies and the fiscal policies predominantly adopted and well implemented by the government. The application of these policy tools are the functions of prevailing economic performance or outlook although, each political fraternity has its major identified macro-economic policy direction.

Monetary policy deals with interest rate policies and money supply policies while fiscal policy deals with taxation and government spending.

I will concentrate on the taxation arm of the fiscal policy at present and possibly deal with others at the appropriate time. The recent introduction of taxes in the 2021 budget has given rise to much controversy as a result of the political twist and the misleading analysis of the applied economic policy. One school of thought thinks it is a good alternative for the country while others also think it is a tactical drift policy by the government because there is already hardship.

State Budget

The budget of every country principally has three main lines: revenue, expenditure and the difference; either surplus or deficit.  In the revenue arm contains taxes which are critical elements of the fiscal policy. The expenditure arm deals with statutory and discretionary spending items.

Fiscal Balance and Sustainable Debt Level

Fiscal policy credibility is about sustainable debt levels and fiscal balance. Governments are supposed to adjust spending or increase revenue generation to attain recommendable debt levels and fiscal balance.

 Best Tactical Fit Tax Policy

The capital structure of every government on the globe comprises profoundly taxes, debts, royalties and others. The tax component plays a major role in ensuring the requisite fiscal discipline. The most familiar taxes in Ghana are income and property taxes, goods and services taxes, international trade tax and the VAT. Tax policies and their management mostly depend on the ideology of the policy framing authority and the prevailing economic outlook.

The NPP government is a capitalist and majorly adopts the expansionary fiscal policy. It means growth does not depend strongly on taxes as economic growth option but, private sector expansion. It does not mean the NPP government does not tax at all. I do not know any country on the continent that does not tax. Our debt to GDP has been upscaled over 70%. COVID-19 economy has made it necessary to revise some relevant fiscal targets downwards. Our revenue shortfalls amount to about GHc25.3bn, banking sector reforms made the government outlay an amount to the tune of GHȼ21bn.

Taxes waived for health workers and frontline health workers were huge.  A number of decisions made by this government under President Akufo-Addo in an attempt to mitigate the impact on our economy by COVID-19, restore our fiscal targets and even resume growth were many and costly.   The PFM Act 2016 (Act 921) Section 18 stipulates the suspension of Ghana government fiscal policies or rules. We are accordingly not in normal times and that, discussions are not managed in a conventional manner.

The only thing is that, as section 3b,c directs that we should have a defined time frame for the suspension and resumption with guiding documents which I suspect the Finance Ministry has done.  Ghana’s present situation requires consolidation, continuity and completion. At present, there is a huge task of completing, consolidating and continuing the inevitable health, social, infrastructural, water, electricity and other statutory programs.  These programs are not only important but urgent and need to be funded by the state to prevent a total collapse of our dear country.

Most people that are criticizing have offered little alternatives that would give an instant result. Respectively from other financial economists, they think the government should not introduce any tax at all in these times. Some of them proposed expansionary fiscal policy as an alternative.  Expansionary fiscal policy is the NPP government’s major economic policy and this can be underpinned by the fact that about 15 tax components were either reduced or scrapped entirely by President  Akufo-Addo’s government.

 Expansionary and Contractionary Fiscal Policies

This is a policy that provokes private sector growth by not burdening the people with too many taxes contrary to contractionary which leverages taxes. The output of the former policy takes about two years to be felt if successfully done. It will be a strategic drift to ignore short contractionary policy considering the prevailing circumstances. Yes, we rather need expansionary fiscal policy but the specific tactical fit is the policy decision made by the government.


This is not the time to do politics when the entire globe is going through an unpleasant economic situation. If one wants to do political analysis then, trend and comparative analysis will have to be conducted. One will say the previous regime imposed about 10 different tax components including petroleum and pharmaceuticals, after inheriting about 7 percent economic growth.  President Akufo-Addo’s government reduced or scrapped about 15 different tax components.

Holistic Public Debate

It will be in the profound interest of the state to provoke a holistic public debate to rather increase the understanding of the citizenry. This will enhance compliance and stimulates growth rather than the debate based on individual and political underlying interests.

The writer is the Member of Parliament MP, Nhyiaeso Constituency, former CEO for Microfinance and Small Loans Centre (MASLOC) 

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