Good news budget -Statesman

IT has been termed the ?Budget of Good News.? It certainly has good news for companies and tax payers, as taxes have been reduced across board. Yet, the promise of jobs is vague, however implicit in the incentives for employers. What is clear is that the 2006 budget does not live up to expectations, considering the background of an additional $4 billion debt relief expected next year.

?In July 2004, on reaching the HIPC completion point, US$2 billion of debt was cancelled outright by the Paris Club of creditors, with a further US$2 billion to be forgiven in installments over the next 20 years.

?Under the G-8 and multi lateral debt relief, Ghana is to be forgiven additional US$4.2 billion by July 2006. This leaves the country with a historic and an immense opportunity to pursue its national aspirations,? stated President John Agyekum Kufuor in his foreword to the 2006 budget read yesterday by the Minister of Finance & Economic Planning, Kwadwo Baah-Wiredu.

IT has been termed the ?Budget of Good News.? It certainly has good news for companies and tax payers, as taxes have been reduced across board. Yet, the promise of jobs is vague, however implicit in the incentives for employers. What is clear is that the 2006 budget does not live up to expectations, considering the background of an additional $4 billion debt relief expected next year.

?In July 2004, on reaching the HIPC completion point, US$2 billion of debt was cancelled outright by the Paris Club of creditors, with a further US$2 billion to be forgiven in instalments over the next 20 years. Under the G-8 and multi lateral debt relief, Ghana is to be forgiven additional US$4.2 billion by July 2006. This leaves the country with a historic and an immense opportunity to pursue its national aspirations,? stated President John Agyekum Kufuor in his foreword to the 2006 budget, read yesterday by the Minister of Finance & Economic Planning, Kwadwo Baah-Wiredu.

Buoyed by the HIPC relief, Government increased its expenditure for 2005 from ?28.7 trillion the previous year to an estimated ?35.801 trillion by the end of this year. But, as an indication of the apparent lack of ambition in a budget expected to advance the manifesto pledge of ?accelerated growth?, total expenditure for 2006 is projected at ?38,972.8 billion. This represents a mere 8.85 percentage increase on 2005. Yet, the corresponding increase in government spending from 2004 to 2005 was 28.7 percent.

Beyond the unexpected additional debt relief, our donor partners have pledged a record $1.2 billion for 2006. Total external inflows into the economy as at end September, 2005 stood at US$747.72 million ? and this is not expected to increase by more than $100 million before end of year 2005.

?All fair-minded Ghanaians will acknowledge that under the leadership of H.E. President Kufuor, Ghana has achieved economic stability, has become an attractive place for investment, and is positioned for accelerated growth,? stressed the Finance Minister.

But, going by the conservative spending programme projected for 2006, it seems Government is over-relying on the private sector to engine the desired ?accelerated growth.?

As captured in the Minister?s statement, ?the focus of the 2006 Budget is growth and employment. After the stabilisation of the macroeconomic environment, government is intensifying efforts towards wealth creation and enhancing growth in disposable incomes of all Ghanaians. This will require the implementation of measures to strengthen the private sector, generate employment, rationalise and enhance revenue mobilisation.?

The reduction in corporate tax rate by 7.5 percentage points from 32.5 per cent to 25 per cent within two years will definitely serve as a fillip. The total amount of tax reliefs of ?293 billion granted to workers will boost their purchasing power as the cedi is expected to hold its own and the Bank of Governor is expecting single digit inflation in 2006.

?The Government recognises the employment issue as a matter of grave concern, and has been working hard and exploring various options and avenues by which the problem can be addressed in a very meaningful manner.?

However, the solution to this concern may be expected elsewhere for Government has, at least going by this budget, shown a disappointing obedience to anti-deficit spending, even at the expense of growth. See Monday?s paper for a fuller analysis..