2012 Budget Missed The Point

By Sydney Casely-Hayford, Sydney@bizghana.com

A day before budget reading there was no shortage of advice for the Government. Most Policy Think Tanks and talking heads offered all the wisdom they had accumulated over the year(s). Even the opposition New Patriotic Party and the Convention People’s Party had a few kind suggestions for Finance Minister Kwabena Dufuor. It did not take five minutes after the dead-pan-budget presentation for the cacophony to start. And there was a lot to criticize.
The Finance Minister is a conservative banker and economist and the President John Atta Mills is ultra conservative. No surprise therefore that we got a very unimaginative budget with no major departures from previous years. In fact, most comments from the opposition harped on the fact that current projects carried forward from 2009, 2010 and 2011 budget statements. How many times are we going to build the landing sites for fisher-folk on the coast? It started with the NPP Government and we have re-budgeted for it three years in a row from 2009.

It is probably time to consider a 2-day budget presentation. Day one should be used to do a thorough comparison of actual performance to budget with a full debate and explanation of what went wrong and why Government could not deliver its targets.

If we are really determined to be a democracy, then Government must live up to the rhetoric of accountability and transparency. It is wrong that Government presents a budget for a year, runs through the budget period and then does not come back to us with detailed achievements and failures. As Ghanaians we never know what goes wrong. Is it bureaucracy, lack of funds, sheer inertia or just incompetence?

Fat on advice, Government was urged to focus on resource mobilization to meet expenditures and infrastructure development and particularly the Single Spine adjustments for Government payroll. At the same time there was cautious advice from the IMF and World Bank not to overspend in an election year and to keep utility tariffs and other subventions in check.
But this is an election year budget. How does a Government that wishes to stay in power not present an expansive budget, especially when you have the chance of tapping into $3billion from the Chinese? And confident that they will source funds from the Chinese, Government raised its spending limits from ghc14billion last year to ghc17.5billion, including ghc1.1billion for priority intervention programs such as SADA, MASLOC, Cuban Medical Brigade, Creative Arts, Jubilee Markets, Sanitation Guards, LESDEP, Youth in Agriculture, ECOBRIGADE, LEAP, NYEP, and the Ankarful Maximum Security project. These are just a select few from the list of 52 projects.
Target revenue is ghc15.6billion. Before arrears and tax refunds we will run a budget deficit of ghc1.9billion. Arrears and refunds add to ghc1.5billion making the cash deficit ghc3.4billion for the year.
So the Government proposed a mix of new resource effort spanning paragraphs 176 and 213 in the statement. While some measures raise taxes on personal and corporate business, the overarching strategy is to increase the tax-to-GDP target for the year from 16.5% to 17.3%.
My chosen set are the “tax amnesty”, “taxation on professionals and informal sector” and “revision of personal reliefs” and as Government rightly points out, only 1.5million of the potential 6million are taxpayers.
Government is granting a tax amnesty to recalcitrant payers. They only have to register before September 2012 when the amnesty period runs out. They will then have 3 months to duck and dive and not get caught in an election year. As part of the policy, Government will set up a task force to track these persons after September. The question is why not now? Once you grant an amnesty you have to make sure you capture all delinquent payers. Then you have to follow up to make sure they do not go wayward again. You must also have punitive elements such as interest and late payments. Finally, you can provide incentives through personal allowances to make it attractive to file taxes. Government has all these avenues but chose the weaker option; procrastinate on the collection till another year. There are many tax evaders to capture in our tax net. Better to flex now than delay the agony.
Virtually no one who works in the informal sector pays any significant tax. Not because there is no law or regulation, but because Government does not implement the law. This is a significant portion of our missing revenue. Because we play politics with poverty programs and safety nets for the poor, we burden the few companies and individuals to support the social interventions, this year a whopping ghc1.1billion.
A taxi driver working the Accra Metropolis takes home at least ghc600 a month. Talk to any of them. They pay their “owner” between ghc15 to ghc25 a day (say average ghc20). When all is said the taxi driver’s profit is ghc600 a month. On average they make ghc7,200 a year. The new tax-free threshold is ghc1,440 with different tax bands from last year. The average savings in this tax bracket is about 2% from last year and the effective tax rate is approximately 12%. If he were to pay the correct tax he would owe Government ghc842.4.
They neither pay taxes nor do they withhold the 15% taxes they pay to their owner. If the owner does not pay over his portion of the tax, depending on the tax bracket in which they fall, the minimum can be ghc632 a year (based on ghc20 for 25days a month for a 12 month year = ghc6,000) held from Government.
A few taxi drivers own their taxis, about 10% of the taxi population. The proportion is about 90% contracted to 10% owned. Between the taxi driver and the owner, they deprive Government of ghc1,474, say ghc1,500.
Assume there are 200,000 taxi drivers in Ghana that makes ghc300million. Include the same number for Trotro drivers and owners, add the tipper trucks, water tankers, long-haul trucks other smaller vehicles for hire, the informal transport sector alone is depriving Government of close to ghc1billion. Now add the other services in the informal sector and you could easily raise another ghc1billion. And this is the law.

The informal sector is a major player in the local tax resource we have available. If we shift away from the politics and focus on the glaring solutions in front of us, it will be clearer. Our challenge is not the new taxes we want to create, it is because we shy away from the obvious. Everyone in this country benefits from social and poverty interventions. We have created tax brackets to make it more affordable and to cushion low-income earners. But we have missed the whole point with all the elaborate and attempted clever solutions to raise revenue. We simply must apply the tax law, as we must all the other laws to govern society. And what happened to last year’s proposal to tax all the for-profit revenue from the Churches and other NGO’s?