The 2023 Budget: Political opportunities, challenges
The 2023 Budget and Economic Statement was finally presented to Parliament on November 24, 2023. In the public commentary following the presentation, two items have caught the attention of citizens – a) the reduction of the E-Levy charge to one per cent and the removal of GH¢100.00 daily limit threshold at which the levy kicked in and b) the increase of the Value Added Tax (VAT) by 2.5 per cent.
How does this government make the case for these two-revenue enhancing measures to the legislators who must pass the budget and to the citizens who must bear the burden?
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The opportunities
The government faces a difficult fiscal outlook in 2023. One of the seven pillars of its post COVID-19 programme for economic growth captured in the budget focuses on aggressive measures to mobilise revenue, hence the decision to propose the changes to the E-Levy and the increase in the VAT by 2.5 per cent.
With these new revenue enhancement measures, the government hopes to raise GH¢143,956,437,532 in 2023. Although tax increments and the timing of it can put any government in a difficult position, a case can be made for it to a weary public who are already feeling the pinch in this current economy. Why do I say so?
It is important to note that Ghanaians are not opposed to taxes. This is made clear in the most recent round (2022) of the Afrobarometer Survey where Ghanaians expressed the following about taxation – a) 65 per cent said it was somewhat/very important to raise more tax revenues; b) 79 per cent said it was somewhat/very important for all citizens to contribute to tax revenues and c) 82 per cent said it was somewhat/very important to ensure that citizens and business pay taxes.
In facing citizens to sell the budget, the government is in a position to leverage this attitude of citizens to make a case for the 2023 budget. A cautionary note on this point — agreeing that taxation is important does not necessarily mean citizens want to be burdened by more taxes. It could mean finding untaxed areas or poorly taxed areas like property rates to generate more revenue.
The challenges
The government also faces a number of political challenges on this front. In the same Afrobarometer Survey (2022), Ghanaians expressed the following views regarding taxation: a) 82 per cent said it was somewhat/very important to reduce the tax burden on citizens; b) only 24 per cent said they were somewhat/very confident in government using the E-Levy to fund development and c) only 23 per cent said government was handling the effective use of all tax revenue fairly well/very well. This is further complicated by the fact that only 9 per cent said that they trusted the ruling party a lot and 29 per cent approve of the president’s performance.
The macro-economic targets set in the budget for 2023 are very modest – a) overall, real GDP growth of 2.8 per cent; b) non-Oil real GDP growth of 3.0 percent; c) end-December inflation rate of 18.9 per cent; d) primary balance on commitment basis of a surplus of 0.7 per cent of GDP; and e) gross international reserves to cover not less than 3.3 months of imports. On the inflation target, the Governor of the Bank of Ghana, in announcing the increase in the policy rate said that 25 per cent is what we can expect to see inflation reduce to by the end of the first quarter in 2023.
The modesty of these targets is a clear indication that the road to full economic recovery will be slow and probably painful. How does a government sell slow and painful to a citizen already feeling the pinch as a result of the state of the economy?
And then comes the biggest political challenge—dealing with the legislature. The closely divided nature of this Parliament means that the adage “the opposition will have its say, but the government will have its way” no longer holds true.
How much cooperation will the governing party get from the opposition party in Parliament knowing how critical these tax measures are to the government’s revenue mobilisation efforts and improving its fiscal position? Also, there is still the intra-party matter of a number of ruling party MPs, who publicly signaled their displeasure with the Finance Minister. Now that the budget has been presented, will they press home their demands and withhold support? Time will tell.
The road ahead
How the government mobilises its machinery to deal with these political opportunities and challenges will determine the success or otherwise of 2023. No matter what happens, the government cannot afford the luxury of this budget suffering the same fate the 2022 budget did.