By Toma Imirhe
Those who thought that government’s public wage bill travails could not get worse, after contributing an unanticipated GH¢1.9 billion to a record high fiscal deficit in 2012 must be having a rethink. The situation, over the past few months has indeed got worse, with teachers, then university lecturers and now doctors, going on strike, one after the other, demanding yet unpaid allowances or salary arrears as the case may be.
While it normally would be easy to empathize with government over the somewhat opportunistic nature of the way those essential public service providers have gone about demanding for their dues, any such sympathy has definitely been severely muted by recent revelations that government recently released some GH¢47 million in end of service benefits for Members of Parliament in the previous legislature’s tenure, even as it protested that it did not immediately have the cash to settle owed teachers and doctors.
But government’s incongruity has taken attention away from the genuine difficulties that it, and its successor political administrations in the future, must face upto: the implementation of the Single Spine Salary Structure has dramatically increased government’s recurrent expenditure bills to the extent that an entire paradigm shift is required in terms of balancing public sector revenues and expenditure.
Last year, the sharp increase in recurrent expenditure led not only to a record high fiscal deficit but an equally sharp shortfall in capital expenditure below the original budgetary target. Effectively this meant that even as government incurred an unsustainable debt to finance its activities it had very little to spend on development projects such as the provision of direly needed infrastructure.
Perhaps the most vivid illustration of the dire effects of this was government’s failure to provide its counterparty funding for the installation of natural gas collection, processing and distribution infrastructure from the Jubilee Oil Field, for energy generation. This was largely responsible for the project now being scheduled to be completed one year late, which is both delaying the availability of relatively cheap feedstock gas for electricity generation and is putting the Jubilee oilfield reservoir walls at risk since Tullow will have to continue re-injecting the gas back into the reservoir well beyond the deadline for doing so safely.
Obviously, government cannot go back on the public sector wage increases brought about under the Single Spine Salary Structure. And considering the build-up of other recurrent spending arrears, there is not very much it can cut back on in other areas too.
Therefore government will have to increase its revenues significantly, to meet its new necessary expenditure levels. The obvious way to do this is to increase tax revenues.
It is instructive that the rebasing of the Gross Domestic Product computations in 2010 has shown that Ghana’s tax collection performance is very poor. Now, with its precarious fiscal position government can no longer avoid this issue. It is imperative that tax revenues rise sharply.
It is almost unanimously agreed that the sensible way to do this is widen the tax net to capture more people and enterprises rather than deepen it to get the few already paying to pay more.
However government, due to its unwillingness so far to take drastic measures to do this, is still seeking to deepen the tax net for some sectors, most notably mining and telecommunications, at the risk of making Ghana an uncompetitive destination for foreign direct investment in those sectors.
Now though government no longer has the luxury of leaving the huge informal sector out of its tax net for reasons of populist politics and failure to make the effort to rope in the informal sector through innovative tax administration strategies.
The starting point is to introduce and implement a tax regime for informal sector operators such as artisans, and local caterers that is simplistically structured and with very low tariffs. The idea is to make it easier for informal sector people to pay their taxes than to try and evade them.
This means very low, flat rate taxes, at least for a start that such people can afford to pay without batting on eyelid, say, for instance one Ghana cedi a week. That way many, if not most, informal sector operators would pay up simply because it is easier than trying to give government’s tax collectors the run around.
Importantly this would get the informal sector used to paying taxes, while at the same time enabling the Ghana Revenue Authority build a data base. All this would serve to prepare the grounds for a more effective, and sophisticated tax administration regime as time goes by.
Pulling the unstructured informal sector into the tax net is certainly no easy task, which is why successive governments have shied away from it over the years. However, as the ancient Chinese adage goes “The journey of a thousand miles starts with one step”.
Taking that step is now absolutely necessary. So let us take it.
Those who thought that government’s public wage bill travails could not get worse, after contributing an unanticipated GH¢1.9 billion to a record high fiscal deficit in 2012 must be having a rethink. The situation, over the past few months has indeed got worse, with teachers, then university lecturers and now doctors, going on strike, one after the other, demanding yet unpaid allowances or salary arrears as the case may be.
While it normally would be easy to empathize with government over the somewhat opportunistic nature of the way those essential public service providers have gone about demanding for their dues, any such sympathy has definitely been severely muted by recent revelations that government recently released some GH¢47 million in end of service benefits for Members of Parliament in the previous legislature’s tenure, even as it protested that it did not immediately have the cash to settle owed teachers and doctors.
But government’s incongruity has taken attention away from the genuine difficulties that it, and its successor political administrations in the future, must face upto: the implementation of the Single Spine Salary Structure has dramatically increased government’s recurrent expenditure bills to the extent that an entire paradigm shift is required in terms of balancing public sector revenues and expenditure.
Last year, the sharp increase in recurrent expenditure led not only to a record high fiscal deficit but an equally sharp shortfall in capital expenditure below the original budgetary target. Effectively this meant that even as government incurred an unsustainable debt to finance its activities it had very little to spend on development projects such as the provision of direly needed infrastructure.
Perhaps the most vivid illustration of the dire effects of this was government’s failure to provide its counterparty funding for the installation of natural gas collection, processing and distribution infrastructure from the Jubilee Oil Field, for energy generation. This was largely responsible for the project now being scheduled to be completed one year late, which is both delaying the availability of relatively cheap feedstock gas for electricity generation and is putting the Jubilee oilfield reservoir walls at risk since Tullow will have to continue re-injecting the gas back into the reservoir well beyond the deadline for doing so safely.
Obviously, government cannot go back on the public sector wage increases brought about under the Single Spine Salary Structure. And considering the build-up of other recurrent spending arrears, there is not very much it can cut back on in other areas too.
Therefore government will have to increase its revenues significantly, to meet its new necessary expenditure levels. The obvious way to do this is to increase tax revenues.
It is instructive that the rebasing of the Gross Domestic Product computations in 2010 has shown that Ghana’s tax collection performance is very poor. Now, with its precarious fiscal position government can no longer avoid this issue. It is imperative that tax revenues rise sharply.
It is almost unanimously agreed that the sensible way to do this is widen the tax net to capture more people and enterprises rather than deepen it to get the few already paying to pay more.
However government, due to its unwillingness so far to take drastic measures to do this, is still seeking to deepen the tax net for some sectors, most notably mining and telecommunications, at the risk of making Ghana an uncompetitive destination for foreign direct investment in those sectors.
Now though government no longer has the luxury of leaving the huge informal sector out of its tax net for reasons of populist politics and failure to make the effort to rope in the informal sector through innovative tax administration strategies.
The starting point is to introduce and implement a tax regime for informal sector operators such as artisans, and local caterers that is simplistically structured and with very low tariffs. The idea is to make it easier for informal sector people to pay their taxes than to try and evade them.
This means very low, flat rate taxes, at least for a start that such people can afford to pay without batting on eyelid, say, for instance one Ghana cedi a week. That way many, if not most, informal sector operators would pay up simply because it is easier than trying to give government’s tax collectors the run around.
Importantly this would get the informal sector used to paying taxes, while at the same time enabling the Ghana Revenue Authority build a data base. All this would serve to prepare the grounds for a more effective, and sophisticated tax administration regime as time goes by.
Pulling the unstructured informal sector into the tax net is certainly no easy task, which is why successive governments have shied away from it over the years. However, as the ancient Chinese adage goes “The journey of a thousand miles starts with one step”.
Taking that step is now absolutely necessary. So let us take it.
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