Although the world as a whole is facing what has become known as the 3Fs crisis of food and fuel shortages with souring prices and eminent financial meltdown because of debts unsustainability, all of which upend development progress, and therefore calls for urgent global concerted efforts to deal with the menace. Respective countries cannot be absolved by throwing hands up in despair because the drivers to the global peril are not only external – as in the 3Cs of Climate change, COVID-19 and Conflict. There are some internal measures respective governments ought to have held on, to take appropriate and necessary measures to ameliorate the sufferings of their citizens. We may not afford the luxury of towing the line of the advanced economies in cushioning their kith and kin but re-orienting the Ghanaian, putting in place the right and efficient systems, cutting wastage, plugging the gaping holes of leakages and incrementally continuing on the path of pragmatic actions at right times to diversifying the structure of the economy, shouldn’t be above our leaders to making life somehow bearable for the teeming ordinary men and more dignified for the average ones.
At the Macroeconomic level, we are open to one or a combination of the following options: For the Ghanaian economy just like any economy, to be strong and get richer, the country would have to optimise its productive capacity. In other words, we would have to make and sell more things – whether goods or services (of course not the normal or traditional raw materials, but the necessity for value addition). This creates avenue of having a larger pool for taxation and makes it safe even to the extent of not just borrowing, but to ‘print’ some amount of money, so that people can buy those extra things.
There’s certainly not much options in recessionary periods and so when the government announced a seemingly austere measures of cutting its discretionary expenditure by 30 percent, it was deemed to be prudent. Nonetheless, imperative efforts are focused on optimising our productive capacity that will propel immediate job creation as opposed to immediate and drastic deficit reduction. Focusing on deficits may undermine the goal of generating more jobs. Making cuts to discretionary budget would definitely reduce the number of jobs available significantly. Arthur Okun’s rule of thumb states that when gross domestic product (GDP) declines, there is a correlating two fold increase in unemployment. This is precisely because there is going to be a huge negative impact on government programmes. While cutting down the deficit may be a valid long-term goal, the short-term reality is that productive areas and people who benefit from the programmes affected by the cuts are already hurting. In fact, United States budget deficits has been US$3.13trillion (15 percent) of GDP and US$2.77trillion (12.4 percent) of GDP in the successive years of 2021-2022, and a bottom low during World War II in 1943, but the economy is still characterised with adjectives like strongest, resilient and buoyant.
The next option is to continue increasing taxes to shore up government revenues. Admittedly, in many countries taxation is one of the key sources which feeds the budgets at different levels. And so, I’m all for payment of adequate taxes and judicious use of same for sustainable development. Especially as Ghana’s 2.6 percent tax to GDP is one of the lowest, if not the lowest in the sub-region. The dilemma here would be ‘putting something on nothing’. What I mean is that this is more feasible in a thriving economy. Raising the flat rate from 4 percent to 19 percent for those whose annual turnover exceeds 500,000 cedis; and a particular example of an imposition of about 18 different taxes, rates, levies and charges on a clinker with an initial import tax of GH¢749,583 to a whooping sum of GH¢4,726,302 with consequential price escalation is so outrageous, defeatist and counter-productive, which cannot achieve any meaningful purpose of smoothing social inequality.
Such is regressive and clearly violates the Concept of Social Justice as the real sources of monies are not considered in terms of wage size and purchasing ability of the bottom large poor population. Certainly progressive taxation could have the tendencies of lowering the social inequality and reduce income difference and poverty, but not something as regressive as these. By and large, Ghana’s income tax system is progressive. It’s not only workers who seem to be comfortable with such regime. Majority consider it to be fairer than other tax regimes in the sense that it takes a larger percentage of tax from high-income earners than from low-income groups to reflect the presumption that they can afford to pay more. We may have to vigorously pursue the property tax agenda (which is rather doing well in our books than in practice) because it’s more progressive in the sense that it mainly affects high-net-worth individuals (HNWIs), and increase with the size of one’s estate.
When it comes to borrowing, we are often quick to raise the concerns of Debt to GDP and its sustainability. Rightly so, because debt repayment and interest servicing have been an albatross to developmental efforts of emerging economies. Maybe we shouldn’t worry about the debt levels but pick the right issues or measure in the economy to worry about. Precisely because U.S debt as of May 2022 was US$ 30.49trillion, almost 140 percent to GDP.
The fact is that U.S. debt levels do not indicate any risk of imminent default. As long as a country remains a ‘going concern’, where its fiscal institutions are strong and effective, taxing authority is effectively and efficiently run and maintained, and the long-run productive capacity of the nation’s economy is secured, there is absolutely no economic reason to fear default on such a nation’s debt. I am not sure same can be said about Ghana and other emerging economies. In addition, relatively low interest rates on U.S government debt suggest that bond market participants would not be afraid of a sovereign debt default in the United States. Indeed, with the low rates, sufficient economic growth can allow government to borrow indefinitely.
Elsewhere, governments can be wildly intrusive in the economy, and thus, present a hindrance to growth and welfare even if its debt is low. Don’t forget an example where Venezuela’s sovereign debt was only 23 percent of its GDP in 2017, yet its economy has been in turmoil for several years. It can, therefore, be argued that when it comes to debt, what matters is a country’s ability to effectively manage spending to promote welfare even if its debt is high.
Since spending is vital to stimulate economic growth at the macroeconomic level, it is said some measure of inflation is very good for the economy to thrive. And so, in recessionary times some countries do resort to printing money, or what is known as Quantitative Easing – a term that became popular just after the great recession. A country’s currency is not necessarily backed by the gold it holds, though there’s historical antecedents to it (gold standard era). Slowly, the world economies have moved to a fiat currency system, one in which the money was not backed by a commodity, but by the ‘full faith and credit’ of the government, the principles of modern monetary theory (MMT). Therefore, any country can create seigniorage or print as much money as they want with the attending consequences of impairing the functioning of the economy or otherwise. Like it happened in Zimbabwe in 2008 with 231m percent hyperinflation and in Venezuela in South America, when these countries printed more money to try to make their economies grow.
It is worth pointing out, though, that there are many cases when all other things are not equal, and therefore, inflation would not necessarily occur when the money supply increases. I am not sure, however, that if the economy grew faster than the supply of money, then prices of goods and services fall leading to deflation, anyone would be worried about printing of money. The advanced economies, and U.S in particular, are so efficient to the extent of being able to keep the supply of money stable to avoid inflation. To achieve this, the government has two mechanisms for removing money from the economy. The first one is tax (subtracts from). The other mechanism is ‘borrowing’, to neutralise the effect on the quantity of money in circulation.
It’s widely thought that at the microeconomic level, the only way out of poverty is through savings and consistent investment. And that one digs deep into the trenches of poverty by spending what is not earned. (I highly recommend reading ‘The Millionaire Next Door’. If there’s only one lesson one might take away from this book, it probably will be this: if you want to become wealthy over time, live below your means). We ought to have a critical mass of middle-class who will fuel consumption and are expected to continually stimulate private spending and cause economic growth.
At the flip end should be people who can accumulate their wealth over time and be able to create multiple employment. The ability to say ‘no’ now – despite societal pressures and inner desires – in order to have more later, is a core tenet of becoming a self-made wealthy person. These self-made rich people or societies attain such status through struggles which come with sacrifices – saving money, working hard, investing in themselves, and not spending frivolously. Living in this manner for a meaningful period of time is bound to create some deeply-rooted habits and beliefs which include the importance of hard work and focus, and not spending money like crazy. In turn, these now-wealthy a people would have had an ingrained culture to know what it’s like to live simple!
Many of the self-made rich people who accumulate and create wealth over time are frugal and might not feel the need to buy happiness. Their happiness is primarily independent of materialism. They know that fact of life very well that happiness in life doesn’t depend on having that next cool thing. Invariably, the focus of their wealth creation is not for themselves; most often, it’s for the general good of the larger society.
Modesty is a habit cultivated over time. It’s a value which some of the very richest possess. It’s indeed unprincipled to deviate from such an abiding value to be corrupt due to pressure from whatever quarters. NCCE has an onerous task to cultivate in the Ghanaian, not to succumb to societal pressures, but to imbibe the virtue of modesty. A good man or a generational thinker plants tree knowing very well he might not get the opportunity to enjoy the shade.
One may ask whether it makes economic sense to be saving and investing in times where prices of goods and services keep changing by the day. Though Bank of Ghana keeps hiking the basis-point in the policy rate as inflation stayed on an upward trajectory, ostensibly to mop up liquidity in the system. Interest rates is far lower than the inflationary rate. At best, the bank’s policy may constrict consumption and hurt industry capacity to expand.
It all may be easier said than done just like the cliché, ‘we will reduce taxes to keep up the economic momentum’. Nevertheless, there hasn’t been any better time to give a thought to the American economist Thomas Sowell’s remarks: “There are no solutions. There are only trade-offs.”
The writer is a member of Risk and Insurance Management Society, and currently works for Provident Insurance Company as Risk and Compliance Manager.