In its previous budgets, the New Patriotic Party government sought to ensure that economic growth and its benefits trickled down to all citizens and that benefits were felt by everyone. Nuisance taxes imposed by the previous government were abolished. And when concerns were raised by the public, the NPP government, as a listening government, removed taxes introduced earlier, such as the luxury vehicle tax and the adjusted Pay As You Earn (PAYE) tax rates, both of which had had a noticeable impact on the middle class.
These are a few examples of actions taken by a government that prides itself on prudent, sustainable and inclusive economic policy decisions and actions.
However, we have been confronted by a pandemic – COVID-19 – whose impact on the global and our domestic economy has been devastating. This unexpected turn of events required swift action to lessen the negative impact on livelihoods. These actions came at a cost that we must begin to address, taking the tough decisions that bring us back to a path of economic growth that will be felt tangibly.
Thus, the 2021 Budget has sought to balance the need to support the economy through the difficult COVID-19 impact and yet, at the same time, seek a burden-sharing paradigm through tax relief for low income earners and marginal tax increases for the middle and upper classes. Burden-sharing is important, so that the managers of the economy can balance recovery spending with macroeconomic stability.
Responsive and efficient
Clearly, the impact of COVID-19 on the economy in 2020 was pronounced. There have been reported revenue losses for media houses, hotels, restaurants and other enterprises. Retail outlets have rationalised their staff levels, resulting in some cases in a 50% reduction. Indeed, the COVID-19 fallout on the private sector has been severe, as most businesses continue to be cash-strapped and cannot operate at optimal levels, or maintain their current payroll.
For the government, the slowdown in economic activity has resulted in revenue shortfalls and a simultaneous increase in spending. It is expected that the government’s fiscal deficit target for 2021 will probably double on account of COVID-19 pressures.
The government’s response to COVID-19 has been swift and expensive. For example, the National Preparedness and Response Programme cost Ghana about GHC572 million. Total spending under the Coronavirus Alleviation Programme Business Support Scheme (CAPBuss) to cushion medium and small-sized enterprises was in excess of GHC750 million.
GHC20 million was spent to supplement the incomes of frontline health-care workers. There was also the launch of a GHC2 billion guarantee scheme to support banks to lend to corporates. These expenditures, in addition to such measures as free water and electricity provision across the country and support for frontline health workers, made the government the most responsive and efficient within the sub-Saharan African region.
Across the globe, more advanced countries have responded to the pandemic with similar measures: the United States, for example, passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which released about $2.08 trillion for intervention in its economy. In fact, the measures taken by the US, UK and EU were far-reaching. Combined with their monetary policy interventions to shore up these economies’ liquidity, the emergency measures are some of the biggest-scale events in decades.
Claw back with a CARING approach
Just like its more advanced peers, Ghana must show its commitment to spend to support households and businesses during the pandemic – as it is doing effectively, evidenced by an improved GDP growth projection of roughly 5% for 2021. Then, at the same time, Ghana has to prove that its economic policy is prudent enough not to compromise national macroeconomic stability.
The launch of the Ghana CARES programme to invest in infrastructure, housing, regional hubs, as well as the capitalisation of the Development Bank of Ghana (DBG) for private-sector-led growth is in the right direction to ensure a strong post-COVID-19 recovery for Ghana, potentially pushing GDP growth to between roughly 8% and 10% on a sustainable basis. Yet there must be sacrifices – sacrifices that require reorientation and burden-sharing by the citizens if the stability of the economy is not to be derailed.
The more advanced countries are showing us the need for this burden-sharing. South Africa, for example, through increased spending and support for the private sector, is expecting its GDP growth to rebound to 3.3% in 2021 from a contraction of 7.2% in 2020. However, the same country has increased its fuel levy by 27 cents per litre and also imposed an 8% increase on excise duties payable on imported alcohol and tobacco products in its recent national budget policy.
In its 2021 Budget the UK government also signalled an increase in corporate tax from 19% to 25% in 2023, a magnitude of increase said to be unprecedented since the company tax rate for the UK was raised in 1974.
Aim high, aim low
Ghana must take similar measures as a necessary strategy to reduce government borrowing requirements, stabilise the overall budget and ensure that the macroeconomy remains stable.
The reading of the Budget on Friday brought tax increases to support COVID-19-related expenditure. The jury is out, but it is expected that the public will understand the government’s need to increase some consumption-related taxes to suit this purpose. At the same time, these tax measures have been supported by targeted reliefs for low income earners and rebates for companies hard hit by the pandemic, in the form of cuts in vehicle income tax, the extension of social interventions, and 30% relief on corporate income tax.
This burden-sharing – a well-thought-out revenue measure to ensure adequate support and safety net for low income earners while requesting for some sacrifices from the middle and the upper income brackets are a critical feature of the new Budget.
Given the government’s efforts to provide relief for households and businesses during this challenging time created by the pandemic, the private sector in particular must support the government’s efforts to restore the economy and improve livelihoods of the people of Ghana.
As much as every Ghanaian is feeling the crushing effect of this pandemic, which has shattered homes, destroyed businesses and shrunk economies around the world, it will take a patriotic approach to subdue the impact. The experiences of other countries have taught us that to win the war on the pandemic, we need to adopt the power of collaboration as a people. The whole idea of this collaboration is to share the burden brought to us by this overwhelming and unprecedented wave of disease.
Yaw K Dei
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