Ghana: Absolute Debt Add on, Trapped and Bully Taxes and Levies in the 2021 Budget

Prof John Gatsi. renowned economist at the University of Cape Coast, Ghana

Accra, Ghana//-Finally, the public debt figure is out. It is Ghc291.6billion which is 139% more over the 2016 public debt figure of Ghc122billion or Ghc169.6billion in absolute terms excluding the first quarter borrowing for 2021.

The 2021 budget revealed that the debt to GDP ratio in 2016 based on rebased GDP was around 58% and not 73%. Meaning, we are witnessing the worse debt to GDP ratio in 2019 and 2020 fiscal years between 2012 and 2020.

The concept of percentage growth in debt was introduced in the 2021 budget. It is trite knowledge that higher percentage on a small figure produces smaller effects than small percentage on a large figure.

If the debt in 2012 was Ghc50billion and at the end of 2016 it got to Ghc122billion it means the growth in the debt was 144% meaning Ghc 72billion was added.

The same computation shows 139.6% from 2017 to 2020 with Ghc 169.6billion debt added. Interest payments are not on the growth on the debt but on the absolute amount added.

Therefore the one who added more debt in absolute terms is the one that created more debt management burden to the economy.

The introduction of percentage growth in debt under previous National Democratic Congress (NDC) regime and the governing New Patriotic Party (NPP) is not helpful for the government as the explanation is unconvincing.

The regime with higher absolute debt is the one that sacrificed more of the current or future tax revenue of the country because public borrowing is simply pledging future tax revenue to repay what is borrowed today. Thus the need to align the present value of future tax revenue to the amount of borrowing today.

Financial sector cleanup levy!!!

 In the past, successive governments introduced national reconstruction levy on the profits of banks to help revamp the economy and fix the fiscal difficulties.

That seemed to be a call on banks to sacrifice shareholders’ money for nation building.  Ghc21billion which was secured and spent on the financial cleanup exercise! Why this after the exercise ? This is a bully levy imposed on the banks which will translate into cost of bank transactions.

Huge public debt with uncontrolled expenditure in an election year is going to be paid for by the citizens through the introduction of levies and increase in taxes.

It is clear that uncontrollable borrowing puts pressure on the finances of the country such that after payment of interest and compensation nothing is left to throw away “bola” so we are greeted with “ bola” tax.

In election year government has money for Covid-19 related issues but after elections citizens must pay for Covid -19 through Covid- 19 tax.

Everything that citizens can’t do without have been taxed and levied. These are trapped taxes as the elasticity of demand means citizens cannot do otherwise.

Welcome bully levies welcome trapped taxes and welcome bola tax. The 2021 budget is like what you expect in an era of austerity.

The strategy is instead of being plain with citizens to tighten their belts, tell them this is the year of roads so we are increasing the road tolls, tell them we want to  deal with their bola and health so bola tax and health tax.

The only reason why the debt is decomposed to show Covid and excess capacity components is to introduce taxes or levies.

By Prof John Gatsi, Economist and Dean of the University of Cape Coast Business School

 

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