2020 Budget: Statement to feature tax policies, expenditure rationalization

2020 Budget: Statement to feature tax policies, expenditure rationalization
Ken Ofori-Atta - Finance Minister



The Finance Minister, Ken Ofori-Atta, will today present to Parliament what is considered to be a critical budget of the incumbent government as the country goes into an election next year.


One of the major highlights of the budget will be some pronouncements on taxes; as well as efforts to ensure that government’s economic gains reflect in the lives of Ghanaians.



For a government that came into power with its first budget in 2017 touting a shift from taxation to production, the expectations were high especially with the scrapping of eleven taxes that were considered nuisance.



But not very long after that, the Finance Minister introduced new tax policies in the 2018 budget, such as the 35% income tax on earnings of 10,000 cedis and above which has since been increased to 20,000 cedis and above.



Again, there was the introduction of the luxury vehicle tax which has since been abolished after continuous protests. But the NHIL/GetFund levies have been recalibrated as straight levies since 2018 July.



Also, the 2019 mid-year budget review saw an upward adjustment of the Communication Services Tax, CST, from 6 to 9 percent, while the energy sector levy also had components being increased. These tax measures have been triggered by government’s inability to meet its expenditure due to a persistent drop in revenue.



Data from the Ministry of Finance shows that the GRA’s revenue shortfall has led to an accumulated gap of about 3.5 billion cedis in revenue over the last three years.



Revenue and expenditure targets

The 2019 budget projected revenue of 58.9 billion cedis, and expenditure of 73.4 billion cedis. This leaves the government with a deficit of 14.5 billion cedis which is about 4.2 percent of GDP.



Although this is within the 5 percent mark that the government has set for itself, some analysts warn it may escalate and continue into next year; which is an election year; often characterised by increased expenditure.



While revenue target was revised downwards to 58.89 billion cedis in the 2019 midyear budget, expenditure saw an increase to 74.6 billion cedis. This pushed the projected budget deficit up to 4.5 percent of GDP.


Tax issues likely to be highlighted in 2020 budget

The Finance Minister, Ken Ofori-Atta, has hinted that the 2020 budget will focus on tax reforms such as the introduction of fiscal point of sale devices; as such, some believe there may not necessarily be new taxes but rather a widening of the tax net.



Equally, analysts have pushed for the review of the tax exemptions regime which has increased from 391.90 million cedis or 0.9% of GDP in 2010, to 5.3 billion cedis or 2.6% of GDP in 2017.


Balancing the government’s purse to contain deficits

To control expenditure, the government has also undertaken some few cuts in some areas. For instance, that of capital expenditure has dropped by 55 percent between 2017 and 2018.



A situation, Economist, Dr. Adu Owusu Sarkodie believes must not be repeated as infrastructure is key for economic development. The government is however guided by sustaining the flagship programs such as the Free Senior High School policy, Nation Builders Corps, amongst others. It is thus likely that expenditure in such areas may not witness any change at all, or possibly very minimal changes.


2019 economic growth rate targets

For this year, the government is projecting a growth rate of 7.1 percent, which is lower than the IMF’s projection of 7.5 percent. For the three major sectors of the economy, the industry sector comprising factories, manufacturing and extractive



sectors, is expected to see the highest growth of 9.7 percent. This is expected to be followed by the services sector with 7.4 percent; albeit the expectation of a drop in growth in the financial sub-sector.



Agric is projected to grow at 7.1 percent in the wake of the planting for food and jobs program and other initiatives. Mr. Ofori Atta’s presentation will be a major statement to look out for; and the theme will definitely show the path of economic development to be pursued by the NPP government.