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Business News of Wednesday, 15 March 2017

Source: B&FT

Fiscal deficit likely to rise - Economist

An economist and CEO of the Institute of Chartered Economists, Ghana (ICEG), Gideon Amissah, says there is a likelihood of a ballooning fiscal deficit given the proposed tax cuts in the 2017 budget.

The Finance Minister in the 2017 budget presented to Parliament outlined a raft of tax cuts including the one per cent special import tax, the 17.5 per cent Value Added Tax/National Health Insurance Levy (VAT/NHIL) on financial services and domestic airline tickets.

The rest include the abolition of the five per cent VAT/NHIL on real estate and selected imported medicines not produced locally, import levies on spare parts, replacing the 17.5 per cent VAT/NHIL with a three per cent flat rate for traders on the Ghana Stock Exchange (GSE), as well as giving tax credits and other incentives to businesses that employ young graduates.

“The tax cuts and abolition of some will impact government revenue, especially in view of the volatility in crude oil prices, and the problems on FPSO Kwame Nkrumah. On the other hand, government expenditure is expected to go up with the implementation of programmes such as the free SHS, ‘one village, one dam’ and ‘one factory, one district’ among others,” Mr. Amissah, told the B&FT in a post-budget analysis.

Figures from 2012-2016, revenue increased from GH¢16.68 billion to GH¢33.69 billion in 2016, an average of 19.6 percent, year-on-year. The projected revenue of GH¢44 billion for this year is a 33.5 percent more than the outturn for 2016 which according to Mr. Amissah not a realistic target.

Government’s expenditure has increased from GH¢20.6 billion in 2012 to GH¢58.13 billion in 2017, averaging about 25.7 percent increase within the period.

This year’s budget expenditure estimate is 13.7 percent increase over the previous year which is below the 25.7 percent average increase recorded between 2012--2016.

According to Mr. Amissah, with the deficit largely built on a stronger revenue performance, any underperformance could mean that the deficit would likely balloon from the 6.5 percent government has benchmarked.

He believes to remedy the situation, government must proceed with the National Identification process to widen the tax base to cover up for these expected revenue shortfalls.

Plugging revenue leakages is also crucial, and he welcomed the idea of the formation of a Fiscal Council, which he again cautions, should not be politicised, but employ the service of professional bodies to advise government on fiscal consolidation.