An uninspiring and lazy tax?

Author:Amesimeku, Eric Kwame
Position:COUNTRYFILE: Ghana
 
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The Ghanaian Finance Ministry has released a new raft of potentially unpopular tax measures aimed at boosting government revenues and reining in an unsustainable twin current account and fiscal deficit. The IMF has backed the new measures, but opposition groups have summoned the spectre of structural adjustment to criticise the plans, writes Eric Kwame Amesimeku.

Ghana's Minister of Finance, Seth Terkper, has put taxation at the centre of the country's plans to dig itself out of its fiscal hole. Terkper presented the country's budget statement for the 2015 to a degree of hostility from civil society, which feels that the government's preference is pleasing its international creditors over delivering for its people.

The Ghanaian economy has been on a roller-coaster ride over the past 18 months as twin fiscal and current account deficits undermine confidence in the economy. Volatility in international commodity markets, in particular the country's principle exports of gold and cocoa, have undermined Ghana's ability to raise revenue, while a fall in the oil price to $70 per barrel, from more than $100 in June, has undermined longer-term prospects for the economy. The cedi collapsed 36% against the US dollar in the first seven months of the year, but has rebounded part way since August, when the government signalled that it was willing to discuss a programme of support with the International Monetary Fund (IMF).

Ghana's fiscal crisis began in 2010 with huge pay rises offered to government employees, without a clear plan to increase government revenues in step. Between 2010 and 2012, the national wage bill increased 47%, eventually rising to consume more than 70% of tax revenues. Ghana has borrowed heavily from the international markets, and its external debt has risen from 26% in 2006 to more than 60% in 2014. The IMF forecasts gross domestic product growth for the year at 4.5%, well below 2013's growth rate of 7.1%.

Windfalls from the oil industry have yet to arrive, and domestic resource mobilisation has been poor. The country's transition in 2010 to middle-income status, after a rebasing of the economy, locked it out of concessionary loan rates and other development facilities.

Ghana raised money on the international market in July 2013, but its $750m Eurobond attracted a yield of 8% as investors punished the country for its fiscal indiscipline.

Tax on spending

In his statement to parliament, Terkper announced measures to broaden the...

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