80% debt-to-GDP: Tax hikes is the only revenue option – Seth Terkper

The Akufo-Addo government’s only option to generate revenue with the 2021 budget and economic statement is to hike the already increased taxes since there is no more room for borrowing, as the economy is debt-distressed, former Finance Minister Seth Terkper has said.

According to him, the current debt-to-GDP ratio is “more than” what the central bank quoted as of November 2020 at 74.5 percent.

“You’re talking about the debt-to-GDP at the end of 2020 and you’re quoting from the Bank of Ghana”, Mr Terkper asked K.K. Williams, sit-in host of the Class Breakfast Show on Friday, 12 March 2021, hours ahead of the budget presentation.

He then said: “Download the Bank of Ghana MPC report and you’ll see in the details that that was the debt at the end of November, so, if you add December, which is approximately GHS12 to GHS15 billion borrowing every month, that takes you straight to about 80 per cent, which is what Moody’s and the Minority have been saying is the debt level”.

“So, we are already at about 80 per cent”, he said.

In the current circumstances, he said the government will be left with only one unpopular option to generate revenue.

“So, with this, the debt option is very difficult because we are already planning to borrow to finance existing debt. The deficit is already high and, so, if you cannot control some expenditure, then I’m afraid it looks like the option is to increase taxes”, he suggested.

Even with that option, Mr Terkper said there are issues.

“… Let me remind your listeners, that this government has increased taxes already”, he said.

“Remember, the ESLA was increased – the nuisance tax. Remember, in 2019, in the mid-year [review] it was increased because of the IPPs and the other debts.

“Remember the temporary taxes, which are what every government since Jerry Rawlings’ era has relied on during crisis and then within three to two years, you take it off.

“It was supposed to be off in 2017 but it was extended. So, as we speak, the temporary taxes did not go away”, he noted.

Also, he said: “VAT was removed on the emerging sectors, which is the tourism sector and construction. But what did we see? The GETfund and NHIL were removed from the VAT base and businesses were denied the input tax credit, which, in effect, is a tax increase”.

“So, let’s not delude ourselves”, he warned.

Further, he reminded Ghanaians that “there was the personal income tax increases from the top marginal rate; from 25 percent to, first, 35 percent, and then there was the protest and whatever against that and then it was reduced to 30 percent, which is still an increase”.

“And then, income [tax] and fees have been increased. And, so, all fees are going up across the board and that is an indirect way of increasing taxes”.

In Mr. Terkper’s view, “this is a government that has already increased taxes in the last two years, contrary to always saying that we’ve removed 17 tax tithes and all that. No. They have been increasing”.