The 2021 budget: Austerity or hope for economic transformation?

The 2021 budget and fiscal policy statement of government was passed by Parliament after a heated debate. In news commentary, Raymond Tuvi, a Media and Development Consultant analyses the economic policies outlined.

The Budget Statement and Economic Policy of the Government for the 2021 Financial Year that was hotly debated in Parliament last week has been passed with a slim headcount tally of 137 for the Majority to 134 for the Minority. The Budget’s imposition of several taxes, including a COVID-19 Health Levy of a percentage point increase in the National Health Insurance Levy, another one percentage point increase on the VAT Flat Rate, as well as what many consider a superfluous Sanitation and Pollution Levy, and an Energy Sector Recovery Levy under the Energy Sector Levy Act (ESLA), among others, has been the subject of impassioned discussions among think tanks, in the media and in the streets. The government argued that the COVID-19 pandemic had imposed unforeseen challenges on the economy necessitating the mobilization of extra resources to realize the Budget’s objective of “Economic Revitalization through Completion, Consolidation and Continuity”.

Many Ghanaians are, however, not comfortable with the imposition of new taxes, especially in the straitened socioeconomic circumstances prevailing in the wake of the pandemic. Leading members of the Minority are of the view that Government is using the pandemic as an excuse for mismanaging the economy. These include the Minority Leader, Hon. Haruna Iddrisu, who while responding to the Budget Statement as laid by Hon. Osei Kyei-Mensah-Bonsu, his regular counterpart on the other side of the aisle, wearing the hat of Acting Minister of State in Charge of Finance that day, said the government owed Ghanaians an explanation for the increases. The Minority Leader indicated this was on account of the NPP’s opposition to the imposition of VAT that led to the seismic Kume Preko demonstration in 1995.

With the 2021 Budget’s macroeconomic targets, as against the previous years’ performance, set at Expected Overall Real GDP growth of 5% from last year’s 0.2%; Non-oil Real GDP growth of 6.7% from 0.4%; Fiscal deficit of 9.5% of GDP down from 11.4%; Gross International Reserves of not less than 4 months of import cover; End-period inflation of 8% down from 10.4% and reduction of the debt-to-GDP ratio from a precarious 76.1% in 2020, government would need to make the economy work very hard to make the big leap to realize the targets set for 2021.

In a pre-budget interview, Director of the Institute of Statistical, Social and Economic Research at the University of Ghana, Prof. Peter Quartey, anticipated a widening of the tax net to raise revenue for expenditure and fiscal consolidation. What we did not envisage is a run-of-the-mill approach to further stress the demographic categories regularly bearing the tax burden. But on the policy of taxation to finance government expenditure and programmes, it was former British Prime Minister, Winston Churchill, who said, “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” A veritable impossibility, Churchill, who led Britain during the devastating Second World War, and subsequently, through recovery and reconstruction, suggests.

Another quick-fix to financing a developing economy like Ghana’s is borrowing. Although Dr. Rabah Arezki, a former senior World Bank official and current Chief Economist at the African Development Bank, recently stated in a BBC interview that, “going to the credit market should be celebrated”, referencing the European Stability Mechanism, unrestrained borrowing has obvious downsides and has been criticized by both the NPP and the NDC while in opposition. Dr. Arezki is the proponent of the two-pronged approach of debt relief and radically strengthening and instilling discipline in regional economic groupings such as ECOWAS as a way for African countries to pull through their current COVID-19 aggravated economic situations. Though both approaches and, particularly, debt relief – if secured – offer less stress than taxation and better long-term outturns than borrowing, they do not lie within our direct and ready power of influence as a nation to attain.

When we think of the economic miracle of the Southeast Asian countries, particularly Malaysia’s, it was achieved through agriculture, on the back of the oil palm industry with first seedlings sourced from Ghana over a century ago. Today, Malaysia and Indonesia alone account for about 90 percent of the global production of palm oil and its highly lucrative industrial derivatives. Moving from the cutlass-and-hoe kind of agriculture and adding value to our agricultural produce remains our best bet for radical economic transformation.

By: Raymond Tuvi, Media And Development.