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Opinions of Thursday, 23 January 2014

Columnist: Baafi, Alex Bossman

Fuel Prices Increase: Government is not thinking

BY Alex Bossman Baafi

The Mahama-led NDC Government according to the 2014 budget wants a freeze in the increase of public sector wages and salaries. How is that going to be possible with reckless excessive taxation? Every responsible government thinks through all policy initiatives to make sure they go a long way to mitigate the economic hardships of the people, especially the poor and underprivileged who are the majority in society.

This very January, the PURC increased tariffs of water and electricity. The government also went ahead and increased the Value Added Tax (VAT) rate from 15% to 17.5%. Two weeks within this same month the government has increased price of fuel including. Kerosene went up by 19.8%, petrol 6%, diesel 7.8% and Liquefied Petroleum Gas (LPG) 8.73%.

The increase in tariffs, VAT and Petroleum prices are taxes that make the poor poorer in the society. They weaken the purchasing power of the masses, reduce the level of aggregate demand and therefore stifle economic growth. The cost of doing business becomes unbearable and unemployment goes up. The society as a whole suffers because of bad economic policy of the government.

Experience backed by scientific research show that the month January of every year is the hardest month where parents, worker, organizations face pecuniary challenges in all areas of their lives. This is because people in general expend on gift items for loved ones during Christmas and New Year festivities. School fees in particular pop up immediately in January to put parents under intense pressure. Is the government not for the people?

The government should think to know that the timing to roll out all these increase in taxes was not right. Alternative solutions should have been be considered by policy makers and that required critical thinking. That is what the tax payer pays them for.

Jumping quickly every two weeks to the so-called Automatic Adjusted Formula to insert figures to produce results is fine but thinking carefully about the ramifications of its implementation on the economy is critical. The government’s action is tantamount to Lazy Management in my humble opinion. My beef is the multiplier effect of these tax hikes on the living conditions of our people. In sum, it will result in low productivity and low economic growth as unemployment will jump through the window.

Suggestions;

The government must work hard to stabilize the value of the Cedi against major foreign currencies especially the US Dollar. Actions should include increase exports or decrease imports or both. Many business people have cultivated the habit of importing from China. They demand a lot of US dollars putting pressure to increase its value against the Cedi, therefore sell Chinese currency in the open market of our country. This will reduce pressure, if you like, on the US Dollar.

Review Fuel prices quarterly at least in line with PURC module. This will make the public and businesses to plan adequately and make necessary adjustments to their budgets. As it is now it discourages investments decisions. Every effort must be made to cut down waste and rot in the system so that government can re-allocate resource when necessary.

Reduce VAT rate back to 15% to boost consumer confidence and their purchasing power for economic growth. Empower Tema Oil Refinery to produce full capacity to guarantee adequate supply of fuel in the market. Discourage the importation of finished fuel products if possible. Exchange rate and VAT make them expensive in our local market.

Move heaven and earth to complete the Atuabo Gas Project because it will save Government money in the end. It will kill Dumsor-Dumsor and stabilize electricity tariff hikes to some extent. Prioritize and re-allocate resources. Tying down such critical national important project to the Chinese Loan is not reasonable in my humble opinion.

These and other policy options could bring some reliefs to the government and the people. I do appreciate that governance is not an easy assignment by the people. Our problems are many. To turn the economy around requires hard work, discipline, determination, sacrifices and the use of our minds. Government must provide leadership. Best wishes.