Feature Article of Saturday, 3 December 2011
Columnist: Sakyi, Kwesi Atta
Announced In November 2011
By Kwesi Atta Sakyi
2nd December 2011
Hon Dr Kwabena Duffour stated that the theme of the 2012 budget is Infrastructural Development for Accelerated Growth and Job Creation. The theme captures the vision of the ruling NDC which is the Better Ghana Agenda. The theme by inference indicates that there is a huge infrastructural gap in Ghana needing to be filled. This gap covers both public and social infrastructure and utilities such as lack of motorable or all-weather roads, non-functioning railway system, energy deficiency, lack of classrooms and hospitals, lack of shelter or housing deficit, lack of ports and harbours to accommodate increasing passenger and cargo traffic, lack of adequate storage facilities for harvested foodstuffs, lack of job avenues for our increasing number of young graduates, terrible congestion on our urban roads, leading to loss of business and decrease in productivity, lack of water treatment plants to pump out potable and treated water, among others. The 2012 Budget seeks to tackle these problems head on as massive allocations have been made in the budget to increase electricity supply to all corners of Ghana as electricity is cardinal to industrialization and improving the standard of living and quality of life of the people. More importantly, investors cannot locate in rural and remote areas where power supply is absent. With electricity, we can set up factories, run night schools, pump water from the treatment plants and give life to those in hospitals who are on life-support systems. Also, adequate domestic supply of power means importing less fuel from outside, thereby saving foreign exchange.
The budget has categorically placed emphasis on developing electricity, gas and oil infrastructure in the Western Region. This will include the construction of refineries, storage facilities, pipelines and ancillary support systems. This will create a multiplier effect and lead to many job creation avenues opening up. It will in the medium to long term attract many foreign investors to Ghana. The budget has allocated large chunks of funds for the water and sanitation sector as about 607 boreholes are to be sunk and existing water works are to be expanded and new ones built. Many uncompleted roads and bridges will be done in 2012 and hopefully, the traffic blues in Accra will subside. The eastern, western and other arterial roads are to be constructed to improve vehicular movement throughout the country and perhaps reduce the road carnage caused by reckless driving, which lead to avoidable accidents. Improved roads reduce road hazards and risks, especially where potholes are found. The Finance Minister says in the budget that merit goods such as health and education have been prioritized, whereby many new classrooms will be built throughout the country and the NHIS will be given universal coverage by having a one-off payment to access the health facilities. A new law is to be introduced to bring reform and improvement in the NHIS, whose administration has been inequitable, problematic and below par. The Finance Minister in his review of 2010, pointed out that the earthquake and tsunami in Japan had negatively impacted on the global economy, and also the euro zone financial crises have collectively affected aid flows, imports and exports, among others. However, he observed that emergent, transitional and developing economies fared better because of the high commodity prices occasioned by high demand in China and non-euro zone countries. He said that even though the IMF projects 5% GDP growth globally, the growth rates in Ghana and other Sub-Saharan countries look much better, averaging between 7 to 9%.
The Minister pointed out that at risk in Ghana are our aid flows from our development partners, remittances and foreign exchange earnings. The good news in the budget is that of fiscal decentralization. If this is implemented as stated, it will accelerate development and growth at the grassroots as the local industries will be kick-started. However, let us hope stringent control and oversight measures will be put in place at the decentralised points to ensure that released funds are not misapplied or mismanaged. It is hoped that the District Assemblies (local authorities) and the Regional Governments will come up with good governance systems to ensure transparency in the award of government contracts. The Minister stated that the SSPP (Single Spine Pay Policy) will be fully implemented in 2012. He lamented the fact that the public pay expenditure gobbles up 41.2% of total revenue. Is that not empowerment and part of the Better Ghana Agenda, one may ask? He cautioned that there is a policy to link pay to equity and productivity, which is welcome news as hardworking workers will be rewarded for their effort and there will be no disincentive to produce because of inexcusable salary differentials and discrepancies. Furthermore, he sounded a warning that wastage will be eliminated by weeding out ghost workers from the payroll. Let us hope in 2012 the Accountant General and his staff will be robust and up to speed in delivering the much maligned Single Spine Pay Policy (SSPP) without glitches, as workers are expectantly looking forward to receiving what is due them in terms of migrating onto the scheme.
In reviewing past achievements of the NDC in 2011, he stated that 406 communities had been linked to the national grid in Volta, Western, Central and Northern regions and that 6 primary electricity sub-stations had been built in Kumasi and Accra, with expansion works completed for water storage at Mami Water Works and Akosombo. He said currently, 33 foreign airlines are operating to KIA, compared to I5 airlines four years ago. Three new boarding gates have been added at KIA to bring the total to five. Plans are in advanced stage to expand and upgrade the KIA and other airports countrywide. One may ask, when are we getting a new international airport built, as the location of KIA leaves much to be desired in terms of safety, congestion and lack of space for expansion? He said the Agricultural Sector had grown by 2.8%, with the sub-cocoa sector growing by a whopping 14%, mainly due to good government interventions such as paying high price for cocoa, paying suppliers on time, providing subsidies to cocoa farmers by way of fertilizers, improved seedlings, provision of chemicals and farm equipment. The attainment of the one million metric tonnes of Cocoa production this year is a laudable achievement and a big boost to farming in Ghana. However, we are still lagging behind in fish farming and livestock production. Of course, we need the private sector to partner with government in PPP ventures for us to be self sufficient in food production, to meet domestic needs. Government should provide subsidies to livestock farmers to reduce their cost of feed, which is the main impediment to increasing supply. Industrial growth was put at a whopping 36.2%, mainly due to the commencement of oil production. It is expected that petrochemical industries will be set up to provide a forward linkage to the upstream production of crude oil. The Service Sector is the largest contributor to GDP at 48.1% in 2011. This is an indication that Ghana is truly a middle income country. In the advanced countries such as the UK, the labour force in the primary sector is about 3% and the secondary sector 20%, while the remaining majority of 77% can be found in the tertiary and quaternary sectors (knowledge industries). The Minister stated that the 3 oil liftings in the past amounted to 2,980,720 barrels worth $337.3 million dollars or 506 million Ghana Cedis. Of that amount, $112 million dollars was transferred to the Consolidation Account and $54.8 million dollars went into the Stabilization Account, and $14.4 million dollars was put in the Heritage Fund. The GNPC (Ghana National Petroleum Company) got $156.1 million dollars as equity financing cost and shares. I think this is a prudent and excellent appropriation of oil revenue and the government deserves commendation for that, as it augurs well for our future generations. The Minister recounted further that Ghana has met all 4 primary convergence criteria for the WAMZ (West African Monetary Zone) as at June 2011. However, I caution that with the lessons learnt from the euro zone crisis, we should tread carefully in our quest for monetary union and regional integration. This is a reflection of monetary stability and fiscal prudence. He said that the objectives of the current government are fiscal consolidation, macro-economic stability, and accelerated growth, among others. It is known in economic circles that some of these goals are incompatible and mutually exclusive. For example, you do not expect to have macro-economic stability when at the same time you are pursuing a rapid growth vector. As to what fiscal consolidation means, I am in a bit of a quandary but I surmise it means integration of the fiscal functions or having tighter oversight and controls to avoid unnecessary overruns and budget creep. It may also mean having a balanced budget in the years to come.
The economy grew at 4% in 2009, 7.7% in 2010 and 13.6% in 2011 in real GDP terms. These growth rates are symptomatic of those achieved by the Asian Tigers decades ago. The trend is upward and exponential. If this trend continues, in no time our GDP will double and we can move up the rankings. Budget deficit in 2008 was 8.5% but it was reduced to 2% in 2011. Having such a low deficit helps to strengthen the exchange rate of the Cedi and to hold down inflationary pressure, but it is not good for creating job avenues, as the economy contracts. However, such a modest deficit of 2% is within the recommended euro zone deficit for members, which some did not adhere to and it has created the burst financial bubble and contagion, which is doing the rounds in Greece, Italy, Ireland, Portugal and Spain. Inflation is said to have climbed down from a high of 18.1% in 2008 to a single digit at 8.4% in 2011. This means an increase in purchasing power and a few Cedis stretch further than before. Critical to this analysis is food inflation which the Minister said dropped significantly, compared to non-food inflation. This is good for maintaining the exchange value of the cedi on the forex market. International reserves of Ghana for 2011 is said to be the highest ever at $4.98 billion dollars, a laudable achievement. This puts our import cover of goods and services for over 3 months, compared to $2.0 billion dollars at the end of December 2008. The Fiscal deficit target is set at 5.1% for 2012. For the first 3 quarters of 2011, revenue netted was Ghana Cedis, 8798.2 million, compared to budget target of 8119.9 million Cedis. The exceeded amount is 8.4% and it is due to improved revenue collection. The forecast domestic revenue for 2011 is 11,835.7 million Ghana Cedis. Total Expenditure is forecast at 15,565.5 million Ghana Cedis and the deficit is expected to be 4.8% of GDP. The implication of the deficit budget is expansion of job creation avenues and increase in public sector borrowing, which hopefully might not cause inflation or crowd out private sector initiatives. Government may also rely on cooperating partners overseas to provide budget support.
Total public debt increased from $11.2 billion dollars in September 2010 to $14.8 billion in September 2011, an increase of $3.6 billion dollars. The public debt increase is stupendous and may worry observers. This was due to public borrowing to settle arrears of salaries and to undertake new oil infrastructure projects. The External debt by September 2011 was $7.1 billion dollars, representing 48% of the total debt stock. This is not threatening because of investment in ongoing oil projects. The debts have been certified by the IMF as sustainable. According to Minister Duffour, the fiscal deficits have been kept to a minimum to avoid crowding out private sector borrowers who cannot compete with government in borrowing from both the money and capital markets. This is as it should be to give the private sector players leeway to expand and grow. By limiting the deficits, the government also ensures that the interest rates are kept low within reins. The Government of Ghana has already signed a MOU of a $3 billion dollars loan facility from China for infrastructural development and the Ghanaian parliament has given the green light for the deal. In the 2012 fiscal year, projected economic growth is put at 9.4% of GDP. The projected oil revenue for 2012 is 1,239.82 million Ghana Cedis, at a conservative estimate of $90 dollars per barrel. The 2012 budget expenditure is focused mainly on oil and gas infrastructure, agriculture modernization, capacity building in the oil industry, energy and water expansion, education and health infrastructure and finally, completion of transport networks, new fishing and landing harbours, acquisition of mass transit buses, among others. Since much of the expenditure is on capital goods, it will lead to both actual and potential growth in the medium to long term, and also some multiplier effects. However, it will mean less resources allocated to consumer goods as there is hidden opportunity or real cost. Of course, this will create avenues for the private sector to complement government efforts by producing more consumer goods. The 2012 budget is a growth and pro-poor budget as it will shortly be revealed. The Government plans to issue 7 year and 10 year fixed rate bonds to be introduced in 2012. This is a lucrative investment opportunity for speculators to look out for, as they are termed gilt-edged and secure securities. The government plans in 2012 to broaden the tax net and to increase the contribution of the Self Employment Income Tax revenue from 4% to 8%. This is a welcome move to capture the free riders and to lessen the tax burden on those in the formal sector. The tax registration threshold for businesses is to be raised from 90,000 Ghana Cedis to 120,000 Ghana Cedis in 2012. What a relief for small scale entrepreneurs who will have room to expand and grow! With regard to the big fish and big cat multinationals who engage in illegal transfer pricing, a new legislation is on the cards to deal with the annual revenue loss of $36 million dollars due to their underhand practices. Furthermore, government has granted tax amnesty to unregistered businesses to register by September 2012, before the long arm of the law and the wide net of Ghana Revenue Authority catch up with them. There is a new capital gains tax to deal with mergers and acquisitions. This will apply to those who contemplate forming cartels and monopolies to exploit consumers and workers. Perhaps, it will affect lottery and pool winners.
PAYE AND MINING TAXES
For many decades, many Ghanaians have grieved at the fact that many giant conglomerates have been looting our minerals and damaging our environment. Local people in mining areas benefit next to nothing from these foreign concessions. Corporate mining tax has, therefore, been raised from 25% to 35%, effective 2012 to help reduce the carbon footprint of these mines. (In Zambia, the corporate tax has been reduced from 40% to 35% for banks in the 2012 budget). The mines will also pay windfall profit tax of 10% for any additional income earned when commodity prices go up. Also to reduce the ills of transfer pricing, a method known as ring-fencing has been introduced to treat their operations as discrete entities rather than collective wholes so that more tax revenue can be raised, and to check tax evasion. However, the mines earn themselves 20% capital allowance for introducing new technology or capital equipment. A sweetener, perhaps! To reduce the menace of plastic pollution, all plastic packaging companies are to pay 15% tax instead of the previous 20%. This is a welcome relief as it means more money in the pockets of consumers, via reduced tax costs. Also the hospitality industry (hotels) tax has been reduced from 22% to 20%. This will lead to more tourist attractions, more patronage of hotel rooms and more profits for expansion and job creation. Hopefully, hotel occupancy rates will go up. It means more money in people’s pockets. Tax holidays have been given to the Stock Exchange, Unit Trusts and Mutual Funds. If you and I invest in these, it means more money will be in our pockets. Mind you, it is not only the rich moneybags with idle portfolio balances who have to invest in stocks, shares and bonds. Start now dreaming big. It means more money in your pockets in the future. This is a big opportunity for Ghanaians to grab to start growing and accumulating wealth.
PERSONAL INCOME TAX BAND
First GHC 1440 – Free
Next GHC 720 – 5%
Next GHC 1008 – 10%
Next GHC 25,632 – 17.5%
Next GHC 28,800 – 25%
The PAYE tax threshold has been raised so high such that those earning 1440 Ghana Cedis or less are tax exempt. This is more money in your pocket and pro-poor. In Zambia, where I live, the tax exempt threshold was raised to about 600 Ghana Cedis and the highest tax limit for PAYE is 35%! We in Ghana are blessed! What more? The National Fiscal Stabilisation Levy which was introduced 4 years ago has been abolished and all deductions are to be refunded. It is more, much more money in your pockets. Well done Dr Duffour. This is more than a Xmas bonus and I hope voters will advise themselves accordingly where to cast their vote, come October 2012.
The 2012 budget is an excellent piece of fiscal instrument, despite it being pooh-poohed by the vociferous opposition. Will this fine budget remain an academic exercise or it will be actualized and implemented to the letter to make a difference in the lives of Ghanaians, to achieve its lofty goals set out therein? As an economist, I see it as a great budget but it is said that the sweetness of the pudding is in the eating. Let us wait and see how it is implemented, because our bane in this part of the world is that we lack budget implementation discipline. Furthermore, there are unforeseen natural occurrences which are beyond our control. Also we may not have excellent communication structures and adequate financial and physical controls on the ground to capture all the revenue planned for, or we may see partisan politics militating against achievement of budget objectives. As Ghanaians, let us support the policy-makers to develop the country by doing our bit to brighten the corner where we are. In undertaking national development assignments, we need not become partisan or cry wolf all the time from the roof tops. The goal of all should be the attainment of the Better Ghana Agenda which underpins the current government’s manifesto and development agenda.
BY KWESI ATTA SAKYI, LUSAKA