CEPA forecasts tax windfall

The Centre for Policy Analysis (CEPA) has forecast a windfall in non-oil tax receipts that will help the government meet its budget deficit target in an election year.

CEPA said its analysis of January-May fiscal data showed the government can realise additional non-oil taxes equivalent to 1.3 percent of GDP as tax reforms continue to pay dividends to the state.

“There was an underestimation of what non-oil tax revenue would be. On the basis of available data till May, we have found that some of the revenue targets were conservative. So we think we can realise as much as 1.3 percentage points of GDP in extra non-oil tax revenue,” CEPA Executive Director Dr. Joe Abbey told B&FT in an interview.

“We are expecting a repeat performance of what the Ghana Revenue Authority (GRA) was able to do in 2011,” he added, but cautioned against government banking its hopes too much on savings to be made from an ongoing audit of the public-sector payroll.

The government exceeded its target for tax revenue by 13 percent last year in what was seen as the pay-off from integrating the three main tax-collection bodies into a single authority, the GRA, in 2009 to inject greater efficiency into their work.

Amid concerns of possible fiscal slippage as the elections approach, the finance ministry has received Parliament’s approval for more spending, which will widen the budget deficit to 6.7% of GDP in 2012.

But CEPA, which has led a civil-society coalition against election-related fiscal indiscipline, now thinks the deficit target is attainable based on strong revenue projections and recent pronouncements by the finance ministry and the President on their commitment to rein-in spending.

“This is what underpins fiscal discipline. We think the fiscal discipline that we have committed ourselves to is achievable because we think that, like in 2011, the revenue performance will be better than what has been projected by government,” said Dr. Abbey.

He said market sentiments have become more bullish after the International Monetary Fund (IMF) in July announced the successful completion of government’s three-year programme for fiscal stabilisation that began in 2009.

In July, the cedi -- which has lost more than 17 percent against the dollar this year -- saw its depreciation taper off, a sign of renewed confidence from investors, according to the CEPA boss.

“The evidence shows that because the IMF pronounced in July that the stabilisation programme was successful and actually disbursed US$178.7million to Ghana, market participants and external investors renewed their confidence in the programme we were running and which changed market sentiments. And you can see this in the life of the cedi from August and in the bond market.”

Last month, the government’s five-year borrowing costs dropped from a peak at 26 percent to 23 percent after a bond sale targetted to raise GH?300million was oversubscribed by more than 200 percent.

The Bank of Ghana (BoG) eventually sold GH?898million of the bonds after disclosing that foreign investors presented 80 percent of the bids.

Finance Minister Dr. Kwabena Duffuor has said the extra inflows will be used to lengthen the maturity profile of domestic debts rather than widen the deficit.

This would mean a cut-back on borrowing in the short-term segment of the market, a situation that will drive down yields on Treasury bills that have soared as the BoG sought to divert investor interest from holding dollars to cedis, Dr. Abbey said.

The BoG’s monetary-policy committee begins its regular meetings today, to review past actions to support the cedi and claw back excess liquidity in the economy.