IMF to decide 2015 budget focus

The Finance Ministry has indicated that the 2015 budget and economic statement of government will reflect the fiscal prescription from the International Monetary Fund (IMF) as it prepares to present the budget to Parliament next month.

The decision to anchor the budget on the IMF’s expected three-year programme follows a request to the Bretton-Wood’s institution to intervene in the Ghanaian economy, which has suffered significant macroeconomic challenges since the beginning of the year.

The Deputy Minister of Finance, Helen Mona Quartey, on Wednesday told a packed stakeholders’ workshop in Accra to solicit inputs for formulation of the 2015 budget that government will look to incorporate the IMF’s recommendations to restore stability in its 2015 budget and economic statement.

“Even as we go through the negotiations and discussions, we will have a fairly good idea of the measures that they would like to see us implement and the social protection measure we will have to put in place. We will synchronise this with our home-grown policy and our medium-term plan,” she told the B&FT on the sidelines of the event.

“We will be able to present the budget in November. If things delay, we will still do our budget, and we will get the time to add-on what we need to add on. It would be nice if we could have it all together by the end of the year; if it’s not, we still have another quarter to fix it,” Mrs. Quartey said.

Last week, an IMF team led by Joel Toujas-Bernate concluded its preliminary discussions with the government team led by Professor Kwesi Botchway.

It is expected that there will be further talks between the IMF and government at the annual general meetings of the World Bank and IMF in Washington DC later this month before a deal is reached.

Ghana’s economy has being going through some economic turbulence since June last year. However, the situation seems to have gotten worse since the beginning of this year.

Government’s expenditure has been a thorny issue in the fiscal struggles that the country faces. Expenditure on wages and salaries from January to May 2014 stood at GH¢3.8million, higher than the budget target of GH¢3.7million.

The expenditure on wages and salaries for the first five months of the year is also 26.2 percent higher than the outturn for the same period in 2013.

Government also spent another GH¢348.5million on the payment of wage arrears as at July.

Finance Minister Seth Terkper in July announced a cut in government’s 2014 economic growth target and forecasted a wider budget deficit and higher inflation -- due largely to falling revenue inflow, depreciation of the cedi, and a decline in the world market prices of key foreign exchange earners gold and cocoa.

Budget deficit is also projected to hit 8.8percent of Gross Domestic Product (GDP) -- up from an initial 8.5 percent.

An overall GDP growth, including oil, of 7.1 percent is projected with an end-year inflation of 15 percent.

Dr. Edward Larbi-Siaw, Tax Policy Advisor at the Ministry of Finance, said property and rent taxes are areas that government is seeking to maximise revenue from in the 2015 budget year.

“Revenue from property and rent taxes has been low. In the USA, as much as 7% of their collection is from property rates -- but in Ghana it is .0025 percent,” he said.

Government this year directed all Metropolitan, Municipal and District Chief Executives (MMDCEs) to ensure all streets under their respective domains are named, following the launch of the National Urban Policy Framework and Action Plan.

The Local Government Service has said that all streets have been named, and a house numbering project will soon follow.

Dr. Edward Larbi-Siaw added: “The whole programme (street-naming) is to be followed with the proper valuation of property. Most properties have not been valued for more than 20 years.

“Property and rent taxes are areas where study progress can be made. We don’t want to increase taxes but rather broaden the base. There are several people who have done studies and are coming to tell us that there is a lot to gather from rent tax,” he said.

The Association of Ghana Industries (AGI) called for a second look at the revision regime governing property rates. The Association wants a ceiling for a single review of property rates, which they claim can be as much as 800 percent of the existing rate.

The AGI also called for a review of the imposition of 17.5percent Value Added Tax (VAT) on locally-produced drugs. The AGI said this, combined with the numerous challenges facing producers, makes them uncompetitive in the face of stiff competition from drug producers mainly in Asia. It also wants a review of the 10 percent environmental tax.

The AGI also wants a Legislative Instrument (L.I.) passed to compel businesses to associate with the umbrella-body of the industry in which they operate, so they can be identified for tax purposes. This, AGI said, will help broaden the tax base.

Meanwhile, the Integrated Social Development Centre (ISODEC) and the Institute for Fiscal Policy has asked government to optimise collection of taxes, particularly property tax. The two organisations say the VAT flat rate scheme is regressive and called for a review of the system.

ISODEC and IFP want a regular and timely disbursement of the Capitation Grant to ensure it achieves the purpose for which it was allocated.

They further called for a review of public expenditure to ensure that education, public health, and the Division of Environmental Health of the Local Government Ministry is adequately resourced. They called for a national nutrition policy for children under five years to be captured in the 2015 budget.