Vish Ashiagbor on 2018 budget
The Minister of Finance, Mr Ken Ofori-Atta on November 15, presented the 2018 Budget and Economic Policy which provided some perspectives of the general performance on the economy this year and also the direction for next year.
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The Editor of GRAPHIC BUSINESS (GB), Theophilus Yartey had a conversation with the Senior Country Partner of PricewaterhouseCoopers (PwC), Mr Vish Ashiagbor (VA) where he shared some thoughts on the 2018 Budget. Below are excerpts.
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GB: What do you make of the 2018 budget?
VA: This is the second budget of the government after the first one was read in March and in the space of eight months, I did not expect any radical changes.
The key initiatives were announced in the 2017 budget and these are in the course of being implemented and this budget is indicating that it is a continuation of that effort.
Based on that, I will say the budget is good because there is consistency which gives a clear policy direction and it gives the right signals that the policy will be moved along progressively.
So there were no surprises there and I don’t think there were any radically new initiatives. It was aimed at continuing and strengthening the existing policy framework that were announced in March.
GB: If you look at the macro-economic targets, are they modest or ambitious?
VA: One thing that is noticeable among the macro-economic targets is they are on course.
Largely, the targets that were set in the 2017 budget will be met and if you look at what is being projected for 2018, 2019, and 2020, it is within the same objective of macro-economic stability and trying to diversify the economy into agric and industry where we can create more jobs and sustainable growth.
However, if you look slightly beneath the surface, you see that revenues fell short even though we had increased revenue from oil and gas production.
But despite the revenue shortfalls, the overall fiscal deficit was met because expenditure was also cut to compensate for the shortfall in revenue.
I don’t think there is anything wrong with that because even as individuals, if your income reduces, you cut your expenditure to meet your income. I don’t think there is anything wrong with that except that you can only cut expenditure so much before it starts undermining the growth prospects of the economy.
The focus of the government has to be on pushing up the revenues and I know it is easier said than done but that is where the focus has to be.
The targets are fine, we are beginning to see stronger budget credibility because once the targets are set, we should be within the range in terms of achievement.
How you do that is what we have to look at and in this case, we must focus on revenue collection so we can meet the targets.
We believe the targets are aggressive and we think this is good because it helps motivate you to achieve more.
They are aggressive but in due course, they should be attainable. In due course because the initiatives that will lead to additional revenues do take time to implement and I think when the 2017 budget was read, one of the comments we heard was that the targets were too ambitious.
We all know that implementation takes a bit of time so overall, we think the targets are fine but there is a bit of work ahead to ensure that the structures that underline revenue generation and expenditure management are strengthened to ensure that the targets are met.
GB: Talking about revenue mobilisation, people believe this is all the economy can generate. Do you think so or you think we should work on the informal sector?
VA: Clearly, there is a huge informal sector that if we were to work, revenues will go up. There are lot of small businesses and individuals who are engaged in commercial activities but do not pay taxes and I think even if they were to pay a little bit, it will add up.
So ,therefore, l believe there are opportunities out there to generate more revenues.
There is also the issue of abuse and loopholes in the system. I think these are being worked on as we saw in the last budget that the exemptions regime being abolished and it has been modified slightly now. I think plugging these loopholes also has the potential to generate more revenues so I don’t subscribe to the idea that this is all we can get because there are clearly opportunities for more.
GB: Talking about shoring up revenue, one of the initiatives that the finance minister announced was to introduce POS platforms to ensure tax compliance. Is this the kind of initiative we need now?
VA: I think it is part of a basket of initiatives that will help. It’s not the only thing so you do that plus other things and to the extent that you can use technology to make it easier for people to be tax compliant is a good thing.
It is one of the things that we should adopt in the economy.
GB: With regard to the expenditure cuts, are we not cutting so much that we cannot stimulate growth of the economy to generate the kind of revenue that we need?
VA: My view on that is no, because growth comes from a number of sources. Government’s spending is one source of growth potential, but private business activities is also another source.
It is true that traditionally in our economy,the government has been the main generator of economic growth, but what we are seeing now is a renewed effort to create an environment that allows private sector to
do its things, and use businesses to achieve growth.
So even as the government cuts expenditure which means it’s not going to be involved in certain activities, private sector can take that up.
It’s a matter of the business environment and regulatory environment being conducive enough to allow private businesses to invest in the economy
I don’t think that cutting the expenditure will necessarily impact the economy adversely.
There are certain areas where the government has to be the one to drive like the social sector because it is not a profit generating sector and it is unlikely to see the private sector investing there.
So to that extent, yes, if cuts in expenditure are in those sectors then it will have a negative impact.
But overall, just the fact that expenditure has been cut does not mean that the economy will suffer. It’s a question of where you are cutting. If the cuts are in areas where other people can step in, the impact will be minimised.