A Senior Finance Lecturer at the University of Ghana and Economist, Dr. Lord Mensah has described the government’s provision of social interventions (freebies)- free water and free electricity consumption as suspended payments to be made at some point in the future, and probably sooner rather than later.
Speaking in an interview, he intimated that these freebies are not sustainable and in the long run, would likely bounce back to bite at the citizens later.
Not to belabor the point, however, the government has taken a gamble on extending freebies and the source from which later payments must be made. According to Dr. Mensah, he foresees the government generating funds from citizens through increase in taxes in order to settle these payments.
“…if the government tells you, you are enjoying free electricity, you are enjoying free water. Now, you shouldn’t be so happy, because going forward, if the Government gets hard up with funds, they have no choice than to squeeze you the citizens to pay back whatever has been lost.”
“So effectively, I would say that, yes in the end, you are enjoying now but trust me, brace yourself. Going forward, the market is clear, we can see the future, finance is dried up almost everywhere and strategically we have not restructured our financing to attract funds in a cheaper way.”
He further stressed that, by thoroughly assessing the manifestos of the two major political parties, none provides strategies on cheap ways of raising funds to roll out their policies, for instance regarding infrastructure.
This notwithstanding, he adduced that green infrastructure is a way that countries all over the world are moving towards to attract funding for infrastructure into their countries.
“…now investors are becoming aware, where their money is going, they want to really be sure that the proceeds that will be coming are sustainable. What do we see in the manifestos, we don’t see that?”
“So effectively, clearly the source of financing is a problem and I foresee a situation of tax increment, and the tax increment is not going to be to widen the tax net, because all the investments that we have done are not coming together to help us widen the tax net.”
“But then, I can see the ordinary tax payer being burdened every now and then and then we’re going the vertical direction of increasing our revenue.”
The common notion is that freebies are bad economics, at least to a large extent. And more to the point, the two major political parties have generally resorted to promising more freebies including the provision of free ‘University education’, being recent.
Mr. David Ofosu-Dorte, Managing Partner, AB & David Business Law Firm reinforced the idea that indeed, government has limited space in funding its projects, going forward. However, he expressed a divergent view regarding increase in taxes as something going to happen.
“…. Currently, Ghana is about 25% of corporate tax, if you take corporate tax alone and VAT. In the new era that we are entering from January 1, were we are in an Africa free trade area, the competitor economies like Mauritius, for example who are doing 15% of corporate tax whiles we are doing 25% or you take Botswana which is doing 22.5%, and if you look at the fact that you can trade in goods across the continent, then it will not be a very smart decision to be increasing taxes, so I think in that area we are very tight.”
Furthermore, using the next quarter projected budgetary expenditure, he mentioned that, “about 32% of income generated is used to compensate public sector workers, another 29% goes into interest payments, and 12% to amortize what we have already borrowed.”
This makes about 72% in total, thus indicating that the space left to fund manifesto promises is narrow.
However, he stressed that, all other sources of income available to the government such as; income generation from state-owned entreprises are virtually non-existent due to the drain these institutions have become on the country; public-private partnerships which have potential are also facing huge challenges, considering failed partnerships over the decade.
According to him, the last resort is borrowing, which has the tendency of worsening our current debt levels, he said.
