Harder times ahead

Government on Wednesday laid before parliament its policy and economic statement for 2015, with an indication to Ghanaians that the year is going to get tougher with the tight fiscal and monetary policy stance outlined in a budget that has the IMF’s fingerprints all over it.

The budget, which is laden with new tax implementations and tax increases, was presented as the IMF lurked in the background in its continuing negotiations with government on how the Fund can help government to boost revenue and reduce the deficit.

The Finance Minister Seth Terkper told the 275-member legislature that government is going to continue and enhance its austere policies, and expects economic growth for 2015 to be at just 3.9 percent -- which is a significant cut in the 8.2 percent growth forecast for the period a year ago.

In 2014, government’s expectation of economic growth is pegged at 8.8 percent by the end of December in a year the economy has endured unstable yet familiar times, with rapidly depreciating currency, rising debt levels and erratic power supply.

The sector that is expected to be hardest-hit by government’s more austere agenda is the construction sector, which is expected to experience a bearish growth for 2015. The growth of the economy next year is expected to be underpinned by the industrial sector on account of increasing growth in the petroleum industry due to expected gas production from the Jubilee Field; and commencement of crude oil and gas production in the Tweneboa-Enyenra-Ntomme (TEN) Field and the Sankofa-Gye Nyame (SGN) Field in 2016 and 2017.

Government’s expenditure has over the years been a thorny issue in the fiscal struggles faced by the country. For 2015, government has estimated its overall spending at GH¢41.4billion, which is a GH¢8.8billion above what it expects to get as revenue for the year.

Mr. Tekper said financing the deficit will be from both domestic and foreign sources with net domestic financing estimated at GH¢7.56billion while financing from foreign sources is estimated at GH¢1.25billion.

With this, government has projected that the gap between its spending and revenue -- otherwise referred to as the budget deficit -- will next year be narrowed to 6.5 percent of GDP.

According to the Finance Minister, the projected slow growth in non-oil and overall GDP in 2015 reflects continuing fiscal consolidation, which is expected to peak next year as the country moves to rationalise expenditures, improve revenue mobilisation, and implement structural measures in order to achieve set targets.

Mr. Tekper said government will control its spending and pursue the deficit reduction agenda mainly through tax policies, revenue administration reforms, improved management of public funds, and the implementation of new debt management strategies.

He said government will next year implement the remaining VAT measures for fee-based financial services and commercial real-estate with a change in the VAT on real-estate to a flat 5 percent, which has already been passed.

Already, government has begun implementing what it called a “Special Petroleum Tax” of 17.5 percent imposed on consumers as part of efforts to rationalise the VAT regime and change the petroleum pricing structure.

Additionally, government has reversed excise tax on petroleum from ad valorem to specific; extended the National Fiscal Stabilisation Levy of 5 percent and special import levy of 1-2 percent to 2017; and also increased the withholding tax on Directors’ remuneration from 10 percent to 20 percent.

The increase in taxes and introduction of additional ones reflects prescriptions of the IMF in its May country report.

The Bretton-Woods institution, which has long recommended a more front-loaded fiscal consolidation, called for higher taxes and spending cuts to reduce the budget deficit more quickly.

The Fund’s recommendations in the May country report included higher ad valorem tax or VAT on fuel; hikes in excise taxes; higher taxes on real-estate; a freeze on new tax exemptions; public sector retrenchment and multi-year wage agreements; cutting off subvented agencies from the public payroll; legislative changes to relax transfer rules for statutory funds; and acceleration of financial management reforms.

Mr. Tekper said government will continue its policy of net freeze on employment into all sectors of the public services (excluding education and health) and non-replacement of departing public sector employees in overstaffed areas.

This is expected to come as a big blow to many fresh graduates who spend an average of three years idling before they can find a job -- and the situation is expected to worsen as government looks to cut wage costs in the public sector while private sector businesses are also cutting job placements, as challenges in the economy have forced many to cut down on production output.

The Finance Minister said for 2015 government has set aside a little above GH¢10billion for the payment of wages, salaries and allowances.