Why TUC feels disappointed by government on jobs
The following paper expresses the position of the Trades Union Congress Ghana, (TUC) on the Ghanaian economy and governments efforts at managing it.
The TUC says its first expectation of the government during the Mid-Year Budget Review statement to Parliament by Finance Minister Ken Ofori-Atta was an indication of how many decent jobs had been created, however all that was served were achievements in macroeconomic targets set by the IMF.
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TUC's full statement is reproduced below;
MID-YEAR REVIEW OF THE ECONOMIC AND SOCIAL SITUATION IN GHANA
Submitted to the Minister for Finance July, 2018
Introduction
The Trades Union Congress (Ghana) held its General Council meeting at the Public Utility Workers' Union Hospitality and Conference Centre at Kasoa from 28th to 29th June, 2018.
The performance of the economy was discussed extensively at the meeting with special emphasis on employment creation and other important national issues which affect workers, either directly or indirectly.
Following the extensive discussions of the economy at the above-mentioned meeting and the presentation of the Mid-Year Fiscal Policy Review of the 2018 Budget Statement and Economic Policy to Parliament by the Minister for Finance on Thursday, 19th July, 2018, we would like to comment as follows:
Macroeconomic Performance
The TUC appreciates the achievements in macroeconomic management in the past year including the significant growth of the economy; the declining trend of inflation; the introduction of the Ghana Reference Rate (GRR), the new benchmark interest rate aimed at reducing the cost of capital for private businesses; the increasing investor confidence in the economy, evidenced by a successful issuance of sovereign bond which was reportedly over-subscribed; and tax reliefs for businesses.
We also appreciate the successful implementation of various social programmes including the Free SHS, expansion of the coverage of the School Feeding Programme (SFP) and the Livelihood Empowerment Against Poverty (LEAP), the payment of Teacher and Nursing Trainee Allowances and the Nations Builders Corps; the reduction in utility tariffs; and the transfer of funds into public sector second-tier pension schemes.
These are remarkable achievements, especially when viewed against the background of the ongoing IMF-sponsored Extended Credit Facility (ECF) programme.
However, we are concerned about the recent fluctuations in the value of the Ghana Cedi, in terms of the major international currencies. We urge government to take the necessary measures to stabilize the Ghana Cedi to minimize the negative effects of such fluctuations on cost of living.
Employment Creation
In the 2018 Budget Statement, the Minister for Finance described unemployment as "the most critical economic problem of our time".
It is within this context that we find the following statement, attributed to the Vice President, H.E. Dr. Bawumia, very insightful:
"Job creation is the ultimate measure of success of economic policy" and that "no matter what a government does, no matter the statistics, if at the end of the day graduates and the youth in general cannot find jobs to build their lives, then all those claims are pointless".
The Vice President was right and we agree fully with him, especially in his observation that no matter what government does and no matter the statistics, "if graduates and the youth cannot find jobs to build their lives then all those claims are pointless".
Therefore, the first thing we expected in the mid-year review was the number of decent jobs created in the economy during the period under review. Instead, we only saw achievements in macroeconomic management based on targets set by IMF.
We know IMF never sets targets on employment creation because it is well documented that IMF programmes destroy jobs. No wonder that we have been witnessing jobless growth in the last three decades during which Ghana has been religiously implementing IMF programmes. Various studies have shown that over 8 million Ghanaians are in "vulnerable" employment with no access to social or legal protection. This is one of the reasons why we fully agree with government to bring an end to the IMF programme in December, 2018.
At the end of the IMF programme, we expect government to fulfill its promise to work closely with the groups the Minister for Finance referred to in the Mid-Year Review as "development partners" namely labour, business leaders, traders, entrepreneurs, civil society organisations, think tanks, faith-based organisations, academia, and traditional leaders so that, together, we can find lasting solutions to the employment challenge which the Minister for Finance aptly described as "the most critical problem of our time".
Trade Policy
Ghana's trade policy is not conducive for job creation. The large volumes of imports that have saturated our markets across the country is an indication that Ghana is exporting rather than creating jobs. Ghana can create employment in the right quality and quantity if we can produce a significant proportion of what we consume. In situations where the private sector struggles to compete with cheap imports, what some countries have done was to find ways of shielding domestic firms that are vital sources of employment. Ghana's trade policy is rather exposing our weak and fledgling private sector to unfair competition from countries whose governments are using either covert or overt means of supporting their domestic enterprises to produce cheaply at home for exports.
Governments, over the years, have challenged our domestic firms to compete with their foreign counterparts. But, clearly, they cannot compete with them given the challenges they are facing at home including unfavourable trade policies that over-expose them to unfair competition, high cost of capital, high government charges, unreliable supply of power and raw materials, and unnecessary bureaucracy. The time has come for Ghana to shield our struggling domestic firms from unfair competition.
It is true that the global trading system can be very constraining. But the World Trade Organisation (WTO) rules have sufficient safeguards that Ghana can use to our advantage if we want to and, more importantly, if we can overcome the powerful politically- connected import lobby in Ghana who are benefiting from the excessive imports. For example, the maximum tariff Ghana is allowed to charge on imported rice and meat products within the WTO rules is 99 percent but the tariff Ghana is currently charging on these products is just 20%.
The managers of our economy are refusing to utilise what is called "policy space" in international trade because, as mentioned above, the import lobby in Ghana is very strong and politically well-connected. Moreover, IMF is ideologically opposed to higher trade tariffs because they believe that taxes distort the market.
In order to break this cycle of jobless growth, our government needs to review our trade policy, our investment policies and our procurement policies to make them pro-jobs. Many countries facing a similar import surge that threatens domestic firms and jobs have raised their "applied tariff rates" towards "bound tariff rates". Ghana can and must do so now.
Utility tariffs
The TUC has already expressed satisfaction for the reduction in electricity tariffs ranging from 17% to 30% across the various categories of customers.
At the last General Council meeting our attention was drawn to a tariff study and a tariff plan proposed by Fitchner Management Consulting. After a careful analysis of the tariff plan which proposes a collapse of the two upper blocks of the Residential Class of Consumers in the existing tariff structure, we concluded that the proposal, if implemented, may result in a very significant increase in electricity tariffs.
Many Ghanaians, including workers and their families, are within the Residential Consumers category. Considering the low level of wages in the country any increase in tariffs, as proposed in the Fitchner tariff plan would further increase cost of living and negatively affect standards of living for a significant section of the Ghanaian population. We believe that the most effective way to ensure access to a sustainable, reliable and affordable supply of power is for government to invest in renewable energy projects and to provide a conducive policy environment to encourage the private sector to invest in solar and other renewable energy projects.
Public Service Wage Bill
We recall that in 2009/10, the public service wage bill was nearly 11 percent of GDP. But the wage bill as a ratio of both total tax revenue and GDP has been on the decline in recent years. In 2017, for example, it was 7.2 percent of GDP. As a ratio of total tax revenue, the wage bill came down from about 70 percent in 2010/2011 to 45 percent in 2017.
Clearly, the public service wage bill has seen the biggest drop compared to all other public expenditure items. In the last three years of the implementation of the IMF Extended.
Credit Facility (ECF), wage increases have been significantly moderated leading to a very significant drop in real earnings. Yet, government continues to single out compensation of its employees as the most important fiscal challenge it faces even though the average wage in the public service remains below GHȻ1000 per month.
The objective of reducing the wage bill to 35 percent of total tax revenue must be properly appraised because such low levels of salaries have serious and lasting implications for the productivity in the public service. Government must review its pay policy taking into account the tremendous contributions of health workers, educational workers, the police service, the armed forces, prison service, fire service, civil service and all the other public services. Public service delivery will continue to suffer if public sector workers continue to experience a continuous decline in their real wages.
Taxation
It was obvious from the national debate that preceded the presentation of the mid-year budget review that Ghanaians are not prepared to pay more taxes. We want government to plug the leakages on the revenue side, first, before it asks for more taxes from the people. In 2017, we were told that within one week of the introduction of the paperless port system, revenues went up by 56 percent. In the budget review, however, the Minister for Finance attributed the revenue shortfall in 2017 to lower receipts from international trade taxes, which alone accounted for 76 percent of the revenue shortfall. Import duty and other tax exemptions played a key role in the huge revenue shortfall. Of course, this calls for more drastic measures against these tax exemptions given that the exemptions benefit a few powerful people who are politically-connected. In 2o17 alone, tax exemptions granted by government amounted to GH$2.6 billion. We expect government to provide the right leadership to deal with these irregularities. Government cannot look the other way when the state is losing billions of Ghana cedis and turn around to ask citizens to pay more taxes.
The conversion of the NHIS and GETfund levies into straight stand-alone levies (separate from VAT) will increase government revenues but it surely will have costs implications for businesses and consumers. Since businesses can no longer claim the levies as tax refunds they will pass it on to consumers, depending on the nature of tax incidence of their products. Therefore, it is important that government assesses the new tax measures on domestic production because they appear to be inconsistent with government policy of shifting emphasis from taxation to production.
The 35 percent tax on personal incomes of GH$10,000 and above is too high. If, as suggested above, government is able to plug the leakages in our tax system and it gathers the courage to reduce the numerous tax exemptions for companies including mining companies that are making supernormal profits, there will not be the need to impose higher taxes on Ghanaian workers, many of whom are the sole bread winners in their extended family. We urge government to adopt a gradualist approach to tax increases over a reasonable period of time in order to reduce tax evasion and tax avoidance.
The National Identification Project
The national identification programme is as important national exercise that must be supported by all Ghanaians. If the programme is properly executed, the national ID system has the potential to quicken the pace of formalisation of the economy. But if the programme is poorly executed it can be a source of political instability in the country.
Therefore, we urge the National Identification Authority (NIA) to work with all stakeholders, including political parties and community leaders, to ensure a successful national identification exercise. No Ghanaian citizen should be denied access to the Ghana Card.
Conclusion
The improvement in macroeconomic performance in the past year and the successful implementation of social intervention programmes indicate that Ghana is gradually but surely finding the right path to economic growth and prosperity.
The TUC welcomes the call for social partnership. We believe that a true partnership, characterized by mutual respect, can help address some of the intractable challenges confronting our country. The TUC is committed to working with government and other partners to make the partnership successful. We do not want to see IMF dictating to our government again.
Ghanaians are more knowledgeable about the problems of Ghana than anyone else. Therefore, we are in the best position to offer and implement solutions that deliver us from these self-imposed challenges. The attitude of running to the IMF at the slightest opportunity only signals a lack of faith in our collective abilities to solve our problems. This attitude must change. We believe strongly that with a true social partnership among all stakeholders we can achieve the President's vision of Ghana Beyond Aid as soon as possible.
