IEA proposes innovative taxes to fund free SHS policy
The Institute of Economic Affairs (IEA) has proposed a one per cent increase in the VAT rate or other innovative taxes to sustain the financing of the Free Senior High School policy.
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It argued that since the disposable incomes of parents were going to increase because the policy would be at no cost to them, it would not hurt parents to contribute collectively to support and sustain a laudable scheme.
While commending the policy as a catalyst for sustainable growth and development, it said a study of the budgeted funding sources showed that the funding arrangements could introduce rigidities in the budgeting system.
IEA’s views
A Senior Adjunct Research Fellow of the IEA, Dr Eric Osei-Assibey, said this at a press conference in Accra yesterday.
The press conference was to detail the IEA’s views on the 2017 Mid-Year Budget Review last Monday, July 31, 2017, that was delivered by the Minister of Finance, Mr Ken Ofori-Atta.
The IEA said it was clear that the government was making significant progress in stabilising the macroeconomy after a period of economic instability due to fiscal overruns in connection with the 2016 election.
However, sustaining the gains was a challenge to be focused on.
Challenges
Detailing other challenges, Dr Osei-Assibey said although the targeted 6.3 per cent growth rate was obtainable on the back of oil production and the benefits from macroeconomic stability, “downside risk persists particularly from the non-oil sector growth”.
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He added that figures from the Ghana Statistical Service showed that the non-oil sector growth was weaker, at 3.9 per cent as against 6.3 per cent recorded for the same period in 2016.
He said for the projected 4.6 per cent non-oil sector growth by the end of 2017 as projected by the government was likely to be missed “because of the possible negative effects of the government’s plans to cut expenditure by 1.1 per cent of GDP from GH¢58.1 billion to GH¢55.9 billion.”
He noted that a cut in capital expenditure and a halt in small-scale mining activities were the likely risks.
Dr Osei-Assibey said although interest rates had significantly gone down, it did not reflect in credit developments on the ground.
“The high lending rate is inimical to economic growth as it inhibits private sector credit growth, and thereby constrains domestic investments and production expansion of the economy,” he said.
“Weak domestic revenue mobilisation remains the biggest threat to the attainment of this fiscal target,” Dr Osei-Assibey said in relation to the 63.5 per cent target of fiscal deficit to GDP.
While commending the government on its debt reprofiling that is aimed at minimising cost and maintaining a prudent degree of risk, claimed at helping to develop the domestic capital market, he asked the government to detail a clear plan in retiring the energy debt owed by utilities through the sale of the $2.3 billion local currency bond.
Positive
Dr Osei-Assibey said the key macroeconomic performance as of June 2017 clearly indicated that the government was making significant progress in stabilising the macroeconomy after a period of instability.
He said an overall GDP for the first quarter of 2017 that grew by 6.6 per cent as against 4.4 per cent for the same period last year; inflation, which had reduced to 12.1 per cent at the end of June 2017 from 15.4 per cent as of the end of December 2016, and declining interest rates with the 91-day Treasury bill rates having reduced from 16.4 per cent as of the end of 2016 to 12.08 per cent as of the end of June 2017, were some of the positive key macroeconomic indicators.
“Macroeconomic developments in 2017 point to a recovery in GDP growth, declining interest rates, narrowing fiscal gap, a relatively stable currency and increasing foreign exchange reserves,” Dr Osei-Assibey said.