Former Deputy Finance minister Mona Quartey has predicted the Akufo-Addo government will backtrack on its economic expectations when it realises that its 2017 budget presented last Thursday is not realistic.
She said government is not facing economic reality because it wants to do more with less.
For her, it is unrealistic to plan to roll out expensive programmes and projects and at the same time cut taxes.
She doubts that if government persists in the path stated in the budget, it will be able to meet its 2017 fiscal deficit target of 6.5% of GDP.
In the highly anticipated budget read yesterday in parliament, government’s macroeconomic targets for 2017 include an overall GDP growth rate of 6.3% including oil and a non–oil GDP growth rate of 4.6%
The end-year inflation rate target is 11.2% and a much-dreaded fiscal deficit has been set at 6.5% of GDP.
The fiscal deficit, in particular, is seen as Ghana’s biggest threat to macroeconomic stability and growth. The NDC government, despite setting a target of 5.3 percent of GDP, ended its tenure with the deficit at 10.3 percent of GDP on a commitment basis.
The deficit widens when government spends more than it collects, a regular pattern as this occurred again in 2016.
With a debt of GHC122m hanging over the economy, government over the past few years has prioritised paying its debts. In 2015, government gave five ministries 2bn but paid 12bn in debt-servicing.
Government is further constrained by the fact that all its revenue from taxes is spent on only three recurring expenditure items- wages, statutory funds and debt servicing. It has ended up with only 0.4% of total revenue after allocating 99.6% of taxes on these expenditures.
If government must do anything else, it must borrow or look for foreign aid, it has acknowledged.
But describing his first budget as ‘Asempa’ [Good news] budget, the Finance minister Ken Ofori-Atta stressed that the Akufo-Addo government won’t be fixated on taxing the economy to raise revenue.
Themed “Sowing the seeds for Growth and Jobs”, Ken Ofori-Atta said government will shift economic management from taxation to production and proceeded to announce the abolishing and reviewing of at least 12 taxes and levies described as ‘nuisance taxes’.
The removal on import duty on spare parts in particularly, sparked wide approval.
Discussing the budget on Joy FM’s Super Morning Show Friday, Mona Quartey said she found the easing of taxes on spare parts ‘surprising’.
This is because it will signify an appreciable loss in revenue coupled with further revenue losses from expected low commodity prices for Ghana’s cash crops and exports.
She is worried that government is not likely to meet its total revenue and grants target of GH¢44,961.6 million which is a 33.5% increase over what the NDC government raised in 2016.
Government, she said, will soon discover that abolishing and reviewing taxes is a ‘self-defeating’ move because it will lead to revenue shortfalls. Revenue is needed to close the deficit and also implement seven social programs outlined in the budget.
Government intends to allocate $1million to each of the 275 constituencies in a programme described as Infrastructure for Poverty Eradication.
There is also an ambitious industrialisation plan of setting up a factory in each of the 260 districts which is allocated GH¢456.3 million. There is also a plan to alleviate poverty in Muslim-dominated areas through a GH¢219 million Zongo Development Fund.
Government will also roll out a flagship education policy known as the free Senior High School programme. An irrigation policy known as one-village, one dam will get GH¢94 million. Government also wants to restore teachers and nursing trainee allowance scrapped by the NDC government.
But Mona Quartey argued that the failure of government to give details on how it intends to fund some seven programmes shows the budget is ‘shallow’ and ‘hollow’.
Government also failed to show “exactly what they [are] going to do to be able to control expenditure”, she said.
Government plans to spend GH¢58,137.4 million which is a 13.7 percent increase over the NDC’s expenditure for 2016.
She predicted that government will soon face a reality check by June when it realises that economic figures and its expectations do not match.
She said government is more likely to begin backtracking on its plans and may come back to parliament to review its figures in the mid-year budget review.