Let’s formulate fiscal covenant to reduce government expenditure waste - ILAPI

The Institute for Liberty and Policy Innovation (ILAPI), has suggested the formulation of a new fiscal covenant in Ghana as one of the ways to tackle government expenditure waste.

That new fiscal covenant must outline the parameters within which the Government should spend, what to spend on, how to spend, and when to spend within a budget allocation to avoid non-prioritized and extravagant spending, the Institue has explained.

Mr. Peter Bismark Kwofie, the Executive Director of ILAPI, who made the call, noted that public finance management was key for any democratic state, adding that the legal role of the state was determined through the fiscal covenant or commitment it must have with the people on the back of their taxes.

Mr Kwofie made the recommendation following the publication of the result of a representative perception poll conducted by ILAPI.

According to him, the legal responsibilities of the state as determined by the fiscal covenant must guide the overall pattern of behaviour of the state and the managers of its treasury.

He indicated that there was also the need for legislators to develop fiscal responsibility laws and rules to guide the effective and efficient use of state resources.

He said Ghana, as a democratic state over the years, had found it difficult to act rationally without a fiscal covenant, explaining that a fiscal covenant enforced the necessary clarity needed on the distributive effects of policy delivery, the system of wealth distribution, and the nature of safety.

“A fiscal covenant leads to the development of consensus on norms, standards, and principles that must guide public policy delivery; the state must be guided, and there should be consistency in that behaviour in terms of how it collects resources and how they can be used,” he added.

He said such an expectation was only realizable if there were political agreement between social actors regarding the amount of taxes to be collected, in what manner and form the taxes would be collected, as well as how those taxes must be expensed and accounted for.

The ILAPI Chief Executive stated that such a fiscal covenant agreement would state in clear terms, distinct rules for fiscal discipline or tax responsibility through fiscal responsibility laws, legislating on debt ceilings, and reducing executive discretions on revenue legislation that had specific sunset clauses.

He added that it would also cover transparency in public expenditure by establishing regular engagement with all actors in the development value chain.

Mr. Kwofie noted that the tenets of a fiscal covenant would also include the development and design of efficient criteria for the management of national resources through indexing of revenue and expenditure and the insistence on the principles of budgetary unity and universality, among others.