Mid-year budget: No spending spree, no new taxes

Ahead of the mid-year budget review later this month, government says it will not make any additional financial demands on the national budget, sticking to its commitment to fiscal discipline, a Deputy Minister of Finance has indicated.

With five months left to the 2024 Presidential and Parliamentary elections, the government is determined not to fall for the pressures to overspend its budget and would therefore stick to its programmed expenditure of GH¢226.7 billion.

Speaking to the Graphic Business on the sidelines of a stakeholder engagement to solicit inputs into the mid-year budget, Dr Stephen Amoah, said the government would not repeat mistakes associated with the normal election year political business cycle of overshooting its budget.

Analysts, however, say government does not have the leverage to overspend in this election year given the current economic challenges.

They cite the Domestic Debt Exchange Programme (DDEP) and the ongoing discussions with the country’s external creditors as key actions that would prevent the government from going over its budget in this year’s elections.

They explained that even though the external creditors have agreed to a debt restructuring plan, the international capital market was still closed to the country hence the government did not have the leverage to borrow.

Besides, the Bretton Woods are keenly watching how the government will conduct its business as the fourth tranche of $360 million of the GH¢3 billion facility is yet to hit the country’s vaults.

The Minister of Finance will on July 23, present the 2024 mid-year budget review to Parliament.

Election year spillages
Elections in Ghana have always been characterised by huge budget deficits, which require borrowing to finance.

In 2004, despite the country just benefiting from the HIPC initiative which led to a total debt relief of US$3.5 billion, Ghana still recorded a budget deficit of 3.2 per cent of GDP against a target of 1.7 per cent

In 2008, which was another election year, the budget deficit went into double digits and more than double what was budgeted for, recording 11.5 per cent of GDP against a projection of four per cent.

The story was no different in 2012 as the country recorded a budget deficit of 12 per cent against a target of 6.7 per cent. In 2016, despite being under an IMF programme, the government still missed its budget deficit target.

The overall budget deficit on a cash basis was the equivalent of 8.7 per cent of GDP against an IMF programme target of 5.3 per cent of GDP.

On a commitment basis, the fiscal deficit was 10.3 per cent of GDP. In 2016, right under the watch of the IMF, the country recorded a budget deficit of 8.7 per cent against a target of 5.3 per cent

In 2020, COVID-19 expenses coupled with election-year spending led to the missing of the deficit target.

The overall budget deficit on a cash basis was 11.7 per cent of GDP against a revised target of 11.4 per cent of GDP.

In 2024, the government has set a budget deficit target of 5.9 per cent of GDP.

Going into the 2024 elections, there have been fears and concerns that the government would sacrifice all the gains that have been made under the three-year programme with the International Monetary Fund by overspending its budget in a bid to win the elections.

Dr Amoah said these concerns were in the right direction, but added that this would not be the case this time round.

“Normally in election years, government would want to solve some of the problems and concerns to win votes but this harms the economy and worsens the deficit position.”

“So we are not going to toe that line and we are going to demonstrate our commitment to fiscal discipline by not asking for any supplementary budget,” he said.

No new taxes
The Deputy Minister also emphasised that the government had no plans of introducing new taxes in the mid-year budget.

He said the government was confident in the revenue measures outlined in the 2024 budget and would therefore not burden businesses and individuals with more taxes.

The President of the Ghana Union of Ghana Traders (GUTA), Joseph Obeng, said the decision not to introduce new taxes was a welcome one for businesses.

He said the industry was already battling with the recent introduction of a five per cent excise tax on plastics and any new taxes would have added to their cost of doing business.

“Fortunately we have been promised that no new taxes are going to be imposed. We were recently talking about the imposition of a five per cent excise tax on plastics so we are very happy to hear that they are not going to add another layer to the cost of doing business in the country,” he stated.

Local currency
He said the union was also looking forward to seeing measures to help shore up the local currency.

Mr Obeng said while the ministry was concerned about excessive importation, majority of that was being done by foreigners.

‘A bulk of the importation is not done by the locals, the local contribution is just about 30 per cent, the bulk of the problem is coming from the foreigners who have invaded our market and this is something we can use our investment laws to fight,” he noted.

He said members of the association were also prepared to move away from imports to manufacturing.

“We have to migrate from imports to manufacturing so we need whatever assistance they can give to us to migrate,” he said.