After revenue collections fell below projection in the first quarter of the year, the government is now setting its eyes on GH¢2.9 billion in extra revenue to help fund priority expenditures and keep the deficit within target.
Multiple sources told the GRAPHIC BUSINESS in confidence that the new inflows will emanate mainly from two sources – new taxes and the planned divestiture of the Volta River Authority (VRA).
While some GH¢1.2 billion – 0.5 per cent of GDP – is expected to be grossed from the proposed new taxes, one source said the government was hopeful that the planned divestiture of VRA’s thermal plants would yield about GH¢1.7 billion that would be used to support the budget.
It is understood that details of the revenue measures, which are still being fine-tuned, will be announced by the Finance Minister, Mr Ken Ofori-Atta, on July 18 when he presents the Mid-Year Budget Review to Parliament.
Tax types under consideration
Meanwhile, the GRAPHIC BUSINESS understands that the government is considering introducing a minimum turnover tax for loss-making companies.
It is also considering an upward review of the Communication Service Tax (CST), the Value-Added Tax (VAT), the National Health Insurance Levy (NHIL) and pension contributions to the Social Security and National Insurance Trust (SSNIT) from either the employer or employee side.
The proposed increments are to range from 2.5 per cent to three per cent.
Financial sector clean-up
When finalised and announced, the extra revenue estimates will increase total revenue and grants from the budget target of GH¢51.04 billion (21.1 per cent of GDP) to GH¢53.94 billion (22.3 per cent of GDP).
The extra revenue is expected to help make up for new expenditures that sprang up in the course of the year, following the presentation of the 2018 Budget to Parliament in November last year.
Key among them is the proposed financial sector clean-up, which is estimated to cost GH¢4.6 billion, equivalent to 1.9 per cent of gross domestic product (GDP).
At GH¢2.9 billion, the new revenue estimate is about 1.2 per cent of GDP (estimated at GH¢241.72 billion for 2018) – not enough to cover up for the 1.9 per cent of GDP in additional expenditure to be occasioned by the planned one-off financial sector clean-up.
Despite increasing total revenue and grants, the extra revenue projections and divestiture of the VRA will be welcoming news to the International Monetary Fund (IMF). The fund had earlier observed that revenue outturn was lagging behind projections in the first quarter.
After a week-long review meeting with key government functionaries, the fund said in a statement on June 26 that: “The government’s commitment to achieving the end-year fiscal targets is encouraging.”
“Available fiscal data suggest an increase in government spending — mainly due to frontloading of capital spending and goods and services — while revenue underperformed in the first four months of the year.
“Thus, we welcome the government’s intention to present a balanced and comprehensive fiscal package to Parliament at the time of the mid-year budget review in July,” it added.
It explained further that a balanced and comprehensive fiscal package “will help meet the fiscal objectives and support the implementation of the government’s development agenda”.
The IMF is helping the country to restore macroeconomic stability under a four-year extended credit facility programme (ECF) due to end in December this year.
While it is not clear if the government will equally prune the original expenditure estimate to help make room for new but priority expenditures in the midst of lagging revenues, an economist with the Institute for Fiscal Studies (IFS), Dr Said Boakye, said news that the government was frontloading its capital expenses was “interesting”.
“Previously, when they are unable to meet their revenue target, they cut down expenditure; but which expenditure can they cut? It is largely capital.
“Now, they are even pre-financing their capital expenditure. So the mid-year review that is going to be released will be interesting because I do not know which way they are going to cut,” Dr Boakye, who is a Senior Research Fellow with the fiscal policy think-tank, stated.
Last year, total expenditure was pruned to GH¢51.99 billion, down from the budget target of GH¢52.2 billion.
“Now, if revenue is not being met, how will they close the gap? Is the deficit going up? Perhaps, yes!” he said, noting that the IMF statement made it obvious that a higher deficit would be announced in the mid-year review.
In May this year when the IMF concluded its fifth and sixth reviews under the ECF programme, it said the planned one-off financial sector clean-up would push the deficit to 6.5 per cent of GDP from the budget target of 4.5 per cent.
That notwithstanding, a professor of Economics with the University of Ghana, Prof. Peter Quartey, said rationalising expenditures was the best option under the current circumstance.
“I don’t think raising the deficit is a good option. I would rather they rationalise expenditure by looking at which one they will cut which will not affect production,” he noted.
Last year, the government recorded an improved deficit of six per cent of GDP compared to a budget target of 6.3 per cent.