In accordance with Section 28 of the Public Financial Management Act, 2016 (Act 921), the Finance Minister is mandated to present a Mid-Year Fiscal Policy Review of the Budget to Parliament, not later than the 31st of July of each financial year. The mid-year review of the 2019 Budget Statement and Economic Policy together with a Supplementary Budget is scheduled to be submitted to parliament today.
The fiscal policy review is to give an overview of the macroeconomic development of government over the past 6 months as well as the rest of the year. The six month implementation of the budget has given a clear picture of the health of the economy and is likely that some of the 2019 and medium term macro-fiscal policy targets set in Section 4, Part 248 of the 2019 budget will be revised.
The Finance Minister has indicated that one of the taxes that would be adjusted during the Mid-Year Review is the luxury tax on vehicles in response to stakeholders concerns. The government introduced the vehicle luxury tax in August 2018 as a new policy to help raise more revenue. According to the regulation, vehicles with engine capacities of 3.0 – 3.5 litres attract an annual tax of GH¢1,000; those with engine capacities of 3.6 – 4.0 litres pay GH¢1,500 annually; while 4.1 litres and above attract an annual tax of GH¢2,000.
We expect the mid-year review to give an update on the interventions undertaken by government to support and sustain the industrial transformation vision involving improving collaboration with the private sector and consolidating government strategic initiatives such as One-District-One-Factory, One-Village-One-Dam, Free Senior High School, Planting for Food and Jobs, revitalization of Microfinance and Small Loans Centre, Zongo Development Fund initiative and the National Builders Corps. Additionally, Ghanaians would like to know measures put in place to strengthen the cedi, create sustainable jobs and promote security.
In the 2019 Budget, the central government planned to partner with Metropolitan, Municipal and District Assemblies (MMDAs) to enhance revenue mobilization at the local government level. This partnership is in the areas of property registration, and property data management; the use of a simplified inexpensive tool for property valuation; the setting up of a system for the generation and distribution of bills; and the setting up of a system for the efficient collection of property rates and other rates. The property tax collection at MMDAs levels is low partly due to insufficient valuation capacity and the high cost of valuation. The mid-year review must outline measures put in place to collaborate with the Local Government Service and the MMDAs to enhance efficiency both in the valuation of properties and revenue collection process from property rate.
Ghana is facing a massive infrastructure deficit in areas such as roads, water, bridges, electricity, hospitals, and sanitation. The 2019 budget outlined a number of roads to be constructed and provision of other infrastructure in the areas of sanitation, health, education, rural and urban development management and disaster management. Ghanaians would like to know initial measures and funding arrangements put in place to complete roads and other projects outlined in the 2019 budget. The mid-year review must outline measures in place to minimize the infrastructural gap that called for the introduction of the double track system associated with the Free SHS.
The 2019 budget outlines policy measures in providing support and incentives to local manufacturers to improve their competitiveness. This policy is in response to agitations of local textile manufacturers and the need to revive the textile industry which has been fraught with issues of smuggling and counterfeiting. We expect the Finance Minister to indicate measures adopted to improve the textile industry as well as create additional employment in line with the policy of building a stronger economy for jobs and prosperity.
The One-District-One-Factory (1D1F) initiative aims at establishing at least one factory in each district across the country. In order to enhance the competitiveness of 1D1F enterprises, Cabinet approved a package of incentives for 1D1F companies, including tax holiday, exemption from duties and taxes on imported machinery, equipment and raw materials. In the mid-year review must demonstrate what has been done to ensure that the tax incentives granted under 1D1F yield the likely results.
Government took debt management measures that have led to a reduction in the debt-to-GDP ratio. The economic management team must further implement innovative strategies which would help Government to manage the public debt stock with the main aim of increasing adequate financing at the lowest possible cost and ensuring a prudent degree of risk. The medium term debt management strategy must focus on an appropriate financing mix aimed at supporting fiscal consolidation without compromising macroeconomic stability.
The Fiscal Responsibility Act and setting up a Fiscal Council as fiscal sustainability measure is commendable, but factors such as high public sector wage bill, high-interest payments on debt and capital expenditure meant to achieve the determined industrialization and infrastructure development promises of the government may present a challenge in achieving the stipulated budget deficit of not more than 5% of GDP. To achieve the set fiscal target, Government must re-strategize by strengthening revenue mobilization and work towards improving and sustaining on-going interventions and undertake programs that can translate economic growth and macroeconomic stability into tangible improvements in the lives of Ghanaians.
Dr Eric Akobeng (Economist and Development Policy Expert)