GTUC submits proposals on 2010 Budget to Government

Accra, Oct.2, GNA - Full text of Budget Proposals from GTUC to Government. It is on the theme "Regaining Sovereign Control over Development Policy-Making".

GHANA TRADES UNION CONGRESS (GTUC) PROPOSALS FOR GOVERNMENT OF GHANA BUDGET STATEMENT AND ECONOMIC POLICIES FOR 2010 SUBMITTED TO GOVERNMENT SEPTEMBER, 2009

1.0 Introduction

1.1 The Ghana Trades Union Congress (TUC) has consistently made submissions to Government on various social, economic and labour issues. Since 2005, these submissions have taken the form of inputs into the national budget. In addition to these submissions, the leadership of TUC, in collaboration with other Organised Labour leaders, engages Government on important matters of interest to labour. We have found such dialogue very useful. We hope Government will continue to open its doors and to enlarge the scope for such consultations.

1.2 In our input into the 2008 budget, we expressed our appreciation for the participatory approach the previous Government adopted in economic policy-making by inviting the public to make inputs into the national budget. The current administration has demonstrated that it is determined to continue to solicit information from the public and to engage various stakeholders on all social and economic issues. It is an important step towards total country ownership of our national development policy-making.

1.3 We urge government to deepen the process not only by giving enough notices for interested organisations and individuals to make their submissions but equally importantly by facilitating citizens access to quality information on the economy without which we cannot make informed contributions to the budget process. It is important that civil society organizations especially the universities, research institutions and think tanks take advantage of the space provided by Government to influence Government policies.

1.4 The participatory approach to budgeting can and must be used to generate home-grown solutions or prescriptions to national problems and towards a situation where we regain sovereign control over domestic policymaking. This is important because no foreign expert can claim to understand and appreciate our situation better than we the citizens of Ghana who live and work in this country. In our previous submissions, we suggested that regional forums on the budget may be an effective means by which Government could solicit inputs from the general public into the budget. We are fully aware of the cost implications of this approach, in terms of money and time. But we also know that the social and the long-term economic benefits of such engagement with the public cannot be quantified.

1.5 We are encouraged by the willingness of the current administration to dialogue with Organised Labour on national economic and social policies. In particular, we note the positive outcomes of our consultations on the Single Spine Pay Policy and the implementation of the new national pension scheme. We hope this positive trend will continue.

1.6 In this submission, we present our views on various social, economic and labour issues to Government for consideration in the national budget and economic policies for 2010 and beyond. As usual, we focus attention on what, in our view, is the most important social and economic issues - employment and incomes.

2.0 The Performance of the Economy

2.1 The year 2009 began with a budget deficit of almost 15 percent of GDP and trade deficit of about 20 percent of GDP. Inflation had increased significantly from about 12.8 percent at the beginning of 2008 to more than 18 percent in December 2008. The value of the cedi in terms of the major international currencies particularly the US Dollar began to fall at a higher rate. The national debt stock had risen to about 54 percent of Gross Domestic Product (GDP). Interest rates were rising. The prime rate at the beginning of 2008 was 13.5 percent. It increased to 17 percent in July and stayed at that level for the rest of 2008 to the beginning of 2009.

2.2 The increase in the prime rate led to corresponding increases in average interest rates not only on government securities but also on the inter-bank rates. The interest rates on the 91-day Treasury bill, for example, increased to nearly 25 percent in 2008 from about 10.67 percent 2007. Gross international reserves fell by US$800.4 million at the end of 2008 from a stock of US$2,836.7 million at the beginning of the year to US$2,036.2 million just enough to cover 1.8 months of import of goods and services.

2.3 These developments in the economy - the rising deficits, surge in inflation, and the falling value of the cedi as well as the increase in interest rates - were attributed partly to the global food and energy crises in the first half of 2008. For example, the oil import bill for the first half of 2008 was estimated at US$1,326.49 million compared US$449.61 million for the first half of 2009 representing an annual decline of 66.1 percent. The global financial and economic crisis also contributed to the worsening of Ghana's economic situation.

2.4 It was against the background of high and obviously unsustainable deficits, rising inflation coupled with a falling value of the cedi and global financial and economic crisis that the new administration seeks to build "A Better Ghana, in which real opportunities for gainful employment, prosperous enterprises and social and economic welfare."

2.5 Available data for the first half of 2009 show that the macroeconomic situation is beginning to improve, albeit slowly. The fiscal and external imbalances are beginning to improve. Inflation which increased from 18.1percent in December 2008 to 20.6 percent in April 2009 had stabilised around 20 percent by end of the first half of the year. The trade deficit (merchandise trade) decreased to US$868.69 million, compared to US$2,155.04 million for the same period in 2008. The improvement in trade deficit has been achieved mainly on account of increases in the external price of Ghana's export commodities particularly cocoa (whose price increased from US$2,662.42 per tonne in March 2009 to US$2,940.02 per tonne in June 2009) and a significant slowdown in the oil import bill as a result of a fall in crude oil prices from their 2008 levels. 2.6 The steep depreciation of the cedi against the three major currencies (US Dollar, the British Pound and the Euro) which characterised the first quarter of the year slowed down in the second quarter. In the second quarter of 2009 the cedi depreciated by 6.2 percent against the dollar compared to a depreciation of 11.5 percent in the first quarter. The "narrow" budget deficit reduced significantly to GH¢549.2 million representing 2.5 percent of GDP in the first half of 2009 compared with a budget deficit of GH¢700.2 million or 4.3 percent of GDP for the same period in 2008.

3.0 Economic Management and Policy Making in Ghana 3.1 The past 25 years or so of economic adjustments and poverty reduction strategies in Ghana have been characterised by significant donor influence on the conduct of development policy in Ghana. However, Ghana announced the end of its programmes with the IMF in 2006. That notwithstanding, the NPP administration continued to pursue market-driven policies often prescribed by the IMF and the World Bank. According to Government, there was the need for a massive injection of foreign financial assistance to correct the current macroeconomic imbalances.

3.2 The Government has therefore returned to the international financial institutions - the IMF and the World Bank. The implication is that they institutions have regained control over Ghana's development policy making. The IMF and the World Bank did not hesitate at all to grab the opportunities presented by the crisis and are now calling the shots as far as economic and social policies in Ghana are concerned. It may be recalled that in January 2009, the World Bank warned the incoming NDC Government of the enormity of the domestic fiscal and external imbalances. The Bank advised the new administration to adopt a number of measures notable among them, unsurprisingly, was the recommendation to freeze real wages.

3.3 The TUC, in collaboration with other Organised Labour groups, advised the new administration to ignore the policy advice of the World Bank not because we did not appreciate the severity of the domestic challenges that the incoming administration faces. But we hold the view that the standard IMF and World Bank policy prescriptions are not the way out of the crisis. Organised Labour views the policy prescriptions contained in the World Bank Country Director's letter of 7th January 2009 to President Mills as an attack on the working people and their families and that such policies are likely to exacerbate the problems.

3.4 Government has gone ahead to agree on series of measures with the IMF and the World Bank. In the process, the Bank and the Fund have succeeded in converting the Growth with Macroeconomic Stability strategy outlined in the 2009 budget into a comprehensive programme of macroeconomic stabilisation and reform" over a three-year period (July 2009 to June 2012).

3.5 In that stabilisation programme government has agreed with the IMF and the World Bank to achieve an overall fiscal deficit target of 9.4 percent of GDP in 2009. Any unexpected increases in domestic expenditure or domestic revenue shortfalls that threaten to increase the deficit must be met by "appropriate measures" agreed with the IMF to ensure that the targeted ceiling is achieved.

3.6 The adjustment mechanism or the so-called appropriate response works this way: available data for the first quarter of the year (2009) show expenditure over-run resulting from higher than projected interest payments (the rising Treasury bill interest rates). To achieve the projected fiscal deficit of 9.4 percent of GDP, government must make additional savings elsewhere equivalent to one percent of GDP (or GH¢209 million).

3.7 Key sources of savings include savings from the wage bill as a result of the deferred implementation of the Single Spine Pay Policy and a reduced rate of wage increases for health sector workers (lower than was budgeted for); reduction in government investment spending; and the passage into law of the national stabilisation levy - 5 percent additional profit tax which will be effective by the end of 2010 in some selected sectors.

3.8 The wage bill has been the main target in both the design and implementation of the stabilisation programme as it is seen as the major source of budgetary over-run in recent times. The World Bank identifies the "pay structure" and its "uncertain future evolution." as a major "risk to the ongoing fiscal consolidation process". As a consequence, "The government has implemented a net hiring freeze in the public sector." That the number on the government payroll will be kept at an end 2008 ceiling of 455,000. The programme also includes a freeze on what it calls "grade inflation" which simply means a moratorium on promotions within the public sector.

3.9 The stabilisation programme has imposed an elaborate consultation mechanism that effectively deprives government of any room for policy manoeuvrings. The mechanism outlined in the programme involves quarterly reviews in 2009 and half-yearly reviews starting from 2010. The programme requires that Government enters into consultations with the IMF on "appropriate policy response" should inflation move outside an agreed band.

3.10 For instance, the Government of Ghana "will not be able to request any further disbursement [of funds] under the PGRF arrangement if the inflation rate moves outside the outer band until the consultation with the Executive Board of the IMF has taken place".

3.11 The question is: who is really in charge of economic management and development policy-making in Ghana? Is it the IMF/World Bank or the Government of Ghana? These commitments, in our view are not in the interest of the people of Ghana. This government needs no reminders from us that past policy prescriptions of IMF and the World Bank in the 1980s and 90s only succeeded in making Ghana a Highly Indebted Poor Country (HIPC) at the beginning of the 21st century after decades of religious implementation of IMF/World Bank-funded policies and programmes. After almost a decade of the so-called poverty reduction strategies, which in fact were inflation-targeting strategies, the same financial institutions are back prescribing the same old policies and measures of the 1980s and 90s.

3.12 In its own assessment, the World Bank estimates that to achieve the inflation target for 2009, GDP growth will slow down to 4.5 percent per annum and should there be a further deterioration of the global economic environment, GDP can only grow at a marginal rate of 2 percent, which translates to a decline in per capita terms. And that is what informed the revised growth estimates contained in the Government's supplementary budget.

3.13 Part of what government needs to do to achieve the macroeconomic targets set out in the Stabilisation Programme include reductions in energy and utility subsidies as well as raise the level of taxation. These will further constrain per capita private consumption and increase income poverty by 2 percentage points thereby pushing more people into poverty. How would government hope to provide "opportunities for gainful employment." and reduce poverty if its policies are constraining growth and rigged against the poor?

4.0 Employment

4.1 Employment creation is the single most important socio-economic as well as political challenge facing policymakers in Ghana. The challenge relate directly to the rapid decline in formal sector jobs and the informilisation of employment. In its manifesto for election 2008, the NDC noted, and rightly so, that "Ghana has enough resources for all Ghanaians to have dignified livelihood through employment". Ghanaians are not asking for handouts from government but real "opportunities for gainful employment". That, in the view of the TUC is the only sustainable way to eradicate poverty in our society.

4.2 The 2009 budget sought to pursue growth by among other things, "creating employment through support for micro small and medium enterprises of various categories". However, the budget had no target on employment creation to allow for assessment of how government has fared in terms of employment creation. And in terms of concrete measures to achieve this laudable objective the budget was mute.

4.3 The policy thrust of the 2009 budget is to among other things "work towards the attainment of single digit inflation". In previous submissions to government, the TUC has questioned the obsession with having single digit inflation especially when the range of policy instruments to achieve single digit inflation could have negative impacts for growth, employment creation and poverty reduction - the traditional trade-off between inflation and employment.

4.4 The TUC would like to know from the managers of our economy the empirical basis for the extreme religious attachment to single digit inflation mantra as contained in the IMF/World Bank Veda. In the past decade or so, the Bank of Ghana has forced this singular objective on government and every budget has been predicated on the country achieving single digit inflation. Our failure to achieve such a target means that single digit inflation is not attainable in our present economic situation. And the earlier we come to terms with that reality the better for the citizens of Ghana. It is important that we abandon policies that seek illusive single digit inflation and in the process dampen growth and the potential of the economy to create employment.

4.5 In the view of the TUC, what we need in the present economic situation is a reasonable low and stable inflation (and not necessarily single digit inflation). We maintain that what investors need is a stable inflation but not a fluctuating levels of inflation which makes planning extremely difficult. The 2008 fiscal year which witnessed a major surge in inflation and at the same time produced the highest GDP growth of 7.3% should be enough to convince policy-makers that Ghana in its present economic situation may not require single digit inflation to grow its economy and to create jobs. The low rate of employment creation in Ghana in the last two and a half decades, despite the relatively high levels of growth, could be attributed partly to the inflation-targeting macroeconomic policy. We believe that the most effective way to develop an economy like Ghana's is to shift macroeconomic policy from inflation targeting towards employment creation.

4.6 We believe that ultimately, performance of government will be judged more by how its policies and programmes create decent employment and less by how they reduce inflation through demand side quantitative restrictions. To this end, we urge Government to move away from a framework that targets inflation to one that targets job creation. The 2010 budget must have specific and achievable targets for job creation which can be used as basis to assess the Better Ghana slogan.

4.7 We remind Government that the scale of the employment challenge facing the country requires a well-articulated national policy framework that is embedded in the way the economy itself is managed. Isolated and discrete programmes that are not integrated in the national development framework will have very limited impact on job creation and the Better Ghana agenda. Government must work towards the finalisation and adoption of the National Employment Policy for its implementation to start in 2010.

4.8 We would also like to repeat our earlier calls to Government to see the development of a functioning Labour Market Information System (LMIS) as an important ingredient in its efforts toward job creation. Government should provide the appropriate financial, human and technical infrastructure to enable institutions such as the Ghana Statistical Service (GSS), the Labour Department and the universities and research think tanks to collect relevant labour market information on a timely basis for the planning and implementation of employment policies.

4.9 We also call on Government to invest in social dialogue by providing the necessary resources to facilitate the work of institutions such as the National Tripartite Committee and the National Labour Commission. It is important that institutions dealing with social dialogue and industrial conflicts are given adequate resources and the necessary support. That is the only way we can sustain and even enhance the peaceful industrial relations atmosphere prevailing in the country.

4.10 As part of the efforts to create jobs for the youth Government should offer some level of protection to local industries that are important sources of employment. We cannot continue to open our borders to foreign products that sell at prices far below what they cost to produce because producers of such commodities receive generous subsidies from their governments. We urge Government to adopt policies that give meaning to what is stated in the NDC manifesto "Achieving growth means supporting Ghana's businesses and industries, not making excuses for our market position". Government must demonstrate its commitment by using all means possible to get relief in international trade arrangements to protect our domestic industries.

4.11 We once again would like to emphasize a point we have made many times that at the present stage of Ghana's social and economic development the state must be directly involved in job creation. While this can be done in partnership with the private sector, it is important that, Government does not completely abdicate its role in employment creation to the private sector which is already suffering from unsustainable liberalisation compounded by domestic infrastructural constraints.

4.12 We acknowledge Government efforts toward the continuation and even an expansion of the National Youth Employment Programme (NYEP). We support Government's efforts towards the general review of the NYEP with the aim of enhancing the programme's capacity to provide opportunities for young women and men to participate in the programme as they prepare to participate in the mainstream labour market. We urge Government to involve all the social partners in the review.

4.13 In 2008, the Labour Research and Policy Institute of the TUC undertook an evaluation of the NYEP in all the ten regions of Ghana. The report of the evaluation has since been launched and copies have been submitted to the ministries responsible for employment and youth. We hope the findings will inform the review of the NYEP.

5.0 Incomes and Taxation

5.1 In the Stabilization Programme (referred to earlier) it is stated that "achieving macroeconomic targets would require among other things increased taxation". Of course, there can be no effective Government without taxes. But a cardinal principle that should guide taxation is that it must be fair to all. We do not think Ghana's tax system is fair. Workers in the formal sector are being overtaxed while even many wealthier people operating in the so-called informal economy do not pay tax. A tax system which allows these wealthy business men and women operating in the informal economy to evade taxes with impunity cannot only be described as unfair but also unjust.

5.2 In 2008, total tax revenue amounted to GH¢4,299.5 million (25% of GDP) against a budget target of GH¢3,973.8 million. According to the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana the higher than projected tax revenue was achieved because "direct taxes as a major component of total revenue performed quite well during the year exceeding the budget estimate and the outturn for 2007 by 11.3 and 33.3 percentage points respectively. Indeed, between 2000 and 2008, direct taxes as a proportion of GDP moved from 5.2 percent to 7.3 percent.

5.3 The sharp increase in direct taxes is further attributed to increases in the PAY-AS-YOU-EARN (PAYE) which actually increased by 31.1 percent over the amount recorded in 2007. In the year 2000, Personal Income and Property Taxes contributed 10.9 percent to total tax revenue. By 2007, the contribution of income and property taxes to tax revenue had increased to 13 percent. At the same time, company taxes declined consistently from 15.8 percent in 2000 to 13 percent in 2007. With the exception of personal income taxes, domestic VAT and petroleum taxes, the share of all other major taxes in total tax revenue have either declined from their 2000 levels or have remained unchanged. For instance, the contribution of import duties to tax revenue declined from 18.3 percent in 2000 to 17.6 percent in 2007.

5.4 In 1983, company tax accounted for 41.1 percent of direct taxes, personal income and property taxes accounted for 28.1 percent while taxes from the self-employed accounted for 27.3 percent. By 2007, the share of company tax in direct taxes stood at 42.5 percent while personal income and property taxes increased to 42.7 and taxes from the self-employed declined to 5.5 percent.

5.5 In the first half of 2009, total tax revenue amounted to GH¢2,162.6 million (9.9% of GDP). This represents 17.2 percent higher tax revenue compared to the same period in 2008. Direct taxes stood at GH¢708.5 million against end-period budget target of GH¢673.3 million which is 5.2 percent higher than projected and 29.6 percent above what was collected for the same period in 2008.

5.6 The Minister for Finance and Economic Planning also attributed the higher than budgeted tax revenue to "the performance of personal income tax and other direct taxes..". Personal income tax for the first part of the year (January-June 2009) stood at GH¢319.8 million against budget target of GH298.1 million, while company tax for the period was GH¢287.7 million. On the contrary, indirect taxes (VAT, import duties, excise taxes etc) fell short of budgetary projections by 13.7 percent.

5.7 What Government has succeeded in doing in the past decade is to shift the burden of tax away from highly subsidised foreign products and from company profits onto the few formal sector workers whose salaries are acknowledged to be among the lowest on the African continent.

5.8 In the past few months, the TUC has received several complaints from its members about huge increases in personal income taxes on their basic pay, on overtime pay and on other cash allowances including fuel and car maintenance allowances. At the same time corporate tax rate reduced from 32 percent to 25 percent.

5.9 The main reason for the unreasonably huge increases in personal income tax is that since 2006, the marginal taxes and the tax-free thresholds have remained the same. The tax-free threshold increased from GH¢180 in 2005 to GH¢240 in 2006 and has since remained unchanged even though nominal salaries have increased significantly in the last four years (2006 - 2009).

5.10 The increasing tax burden on workers is simply not acceptable. We expect Government to review the tax margins and the tax-free threshold as well as introduce appropriate tax relief in the 2010 National Budget to ease the tax burden on workers.

5.11 Government should also re-consider reviewing taxes on overtime and some cash allowances since it can lead to over-taxation. For example, taxing cash allowances for fuel at source subject workers to double taxation since workers also pay tax on fuel at the pump.

5.12 We would like to use this opportunity to serve notice that the TUC in collaboration with the other Organised Labour groups would like to engage Government on the issue of income taxes in the coming weeks as part of our efforts to end the unfair and unjust tax system in the country.

5.13 The TUC also reiterate the need for the social partners to revisit the living wage project which has remained on the agenda of the National Tripartite Committee (NTC) for some time now. The Technical Sub-Committee (TSC) of the NTC has done quite substantial work including agreeing on the determinants of a living wage and the identification of different approaches that can be used to determine the living wage. The TSC has recommended a study tour of countries that are already implementing the concept of living wage. We call on government and employers to show commitment towards the final determination of a living wage in the 2010 fiscal year.

6.0 Public Sector Pay Reforms

6.1 Government and Public Sector Unions agreed to a road map at the GIMPA Consultative Meeting in May 2009. Among other things, it was agreed that the implementation of the Single Spine Pay Structure will commence in January, 2010. We urge Government and all the stakeholders to follow the agreed Road Map for the implementation of the new pay policy. We should not allow the IMF and the World Bank to derail the process. Organised Labour has already assured Government of its commitment and we intend to keep to that. We will therefore not entertain any delays on the part of Government, come January 2010.

6.2 As we have said time and again, the on-going public sector pay reform offers government the opportunity not only to raise public sector pay to competitive levels, but equally importantly, it is an opportunity for Government to remove inequities in the pay structure and re-establish a firm control over public sector pay administration through the Fair Wages and Salaries Commission. In that regard it is in the interest of not only public sector workers but also Government to ensure that the implementation of the Single Spine Pay Policy is fully implemented and on time as agreed by all stakeholders.

6.3 We continue to urge Government to provide the necessary resources and support to the various institutions and organisations, in particular the Fair Wages and Salaries Commission and the Controller and Accountant General's Department, to ensure a smooth implementation of the new pay policy.

7.0 International Trade Policy and The Economic Partnership Agreement 7.1 In all our previous submissions to Government, we have raised the issue of Ghana's trade policy and how it affects enterprise development and employment creation. We have done so because we think that trade policy is important for the growth of the private sector and the ability of the economy to create jobs. The TUC is of the view that the current trade regime and the policy that support it, is inimical to private sector growth and employment creation.

7.2 We appeal to Government to review our trade policy and make it consistent with Government's objective of job creation. Government should take advantage of the safeguards offered by current WTO rules and seek relieve for domestic enterprises that are reeling under unsustainable competition induced by over-liberalisation of trade. Government should also provide the necessary support to domestic enterprises that are important sources employment for the growing number of jobseekers.

7.3 Our objection to the Interim Economic Partnership Agreement initialed by the NPP Government is well known. We call on the present administration to reject the Interim EPA. Independent analysis of Ghana's commitments, given under that agreement, shows clearly that it is not in the interest of the people of Ghana.

8.0 Conclusion 8.1 In the past three years, Ghana's economy has faced significant challenges. The high economic growth rates recorded over the past three years have come at a cost. Budget deficit reached almost 15 percent of GDP in 2008. Trade deficit was about 20 percent of GDP. Inflation has increased significantly in the past year and the cedi continues to depreciate against all the major currencies. We have also witnessed a very significant decline in our international reserves. A large number of young women and men are roaming our streets without decent jobs.

8.2 These developments were against the background of much improved domestic revenue mobilisation. Tax revenue, particularly direct taxes, has exceeded budgetary projections in recent times.

8.3 These domestic challenges have witnessed the resurgence of the influence of the Work Bank and the IMF over our domestic economic policy. We think this is not in the interest of the people of Ghana. We all witnessed the negative effects of IMF/World Bank structural adjustment programmes that finally turned Ghana into a Highly Indebted Poor Country (HIPC). No country has achieved economic and social development with the IMF/World Bank prescriptions.

8.4 We urge all workers, civil society organisations, research institutions and all Ghanaians to stand up against IMF/World Bank domination in economic and social policy-making in our country.

8.5 For as long as IMF and the World Bank dominate our economic policy, we cannot create jobs for the teeming youth roaming our streets; we cannot improve salaries of public sector workers and we cannot achieve a meaningful social development. Our professionals will continue to leave Ghana to seek greener pastures because of low wages and poor working conditions.

8.6 The only way we can achieve true social and economic development is to ignore the IMF/World Bank neo-liberal policy biases towards inflation management to focus attention on employment creation for our people. We hope Government will gather the courage to ignore IMF/World Bank prescriptions and lead us away from poverty to prosperity.