Budgets

Budgets

Major policies of the ERP and conditions of IMF funding were that the budget deficit be reduced and that resources be directed from recurrent to capital spending. Consequently, the government achieved a budget surplus each year between 1986 and 1989 and simultaneously boosted the percentage of spending for development projects. During the mid-1980s, budget deficits as a percentage of GDP consistently declined, falling from 4.7 percent in 1982 to 2.7 percent in 1983 to 0.3 percent in 1987. To accomplish this, the government cut spending and reversed its budgetary priorities, raising capital investment at the expense of increased current consumption in order to promote future growth. The government allocated 62 percent of the budget to physical infrastructure and about 33 percent to the country's productive sector. At the same time, spending on social programs, including health, education, and welfare, declined drastically to between 4.7 and 5 percent. As a percentage of GDP, expenditures on health care fell from 1.2 percent in 1970 to 0.26 percent in 1980-83; during the same period, spending on education dropped from 3.9 percent to 0.85 percent.

The 1993 budget, consistent with ERP policies and objectives, aimed to stimulate private-sector growth through lowering taxes on commerce and corporations and by internally balancing accounts. The previous budget reduced the tax rate for commerce, printing, and publishing businesses from 50 percent to 35 percent, bringing these sectors into line with agriculture, manufacturing, real estate, construction, and services, the taxes on which were cut in 1991.

Relief for the financial sector was less generous. The tax rate was reduced from 50 percent to 45 percent to encourage more lending and better terms for borrowers and to reduce the 8 percent to 9 percent gap between deposit and lending rates of interest. The government also reduced the withholding tax on dividends from 15 percent to 10 percent, in line with 1991 cuts from 30 percent. The annual standard personal exemption for individual taxpayers was set at 150,000 (US$380), up from the previous 126,000. This figure reflected a 19 percent increase, 1 percent above Ghanaian inflation the previous year. The top marginal rate of tax was raised from 25 percent to 35 percent, payable on earnings over 14 million, compared with the previous level of 3 million. Finally, import taxes were reduced or abolished, including duties and sales taxes on all building materials. The super sales tax on luxury goods, introduced in 1990, was also abolished. A maximum rate of 10 percent was set on such imports.

Tax evasion and corruption, both of which are rampant throughout Ghana, severely affected the government's ability to collect taxes in all categories. In December 1993, the Ghanaian parliament passed the Serious Fraud Office Bill. This act empowered the fraud office to investigate fraud and embezzlement crimes against the state. Despite this action, it is unlikely that the authorities will be able to stop tax evasion or other white collar crimes anytime soon. (Country Report 1, 92))

Reform of the tax base and prudent fiscal management contributed to budget surpluses and dramatically reduced government recourse to the banking sector. By the early 1990s, nonetheless, Ghana still relied heavily on external grants to achieve its twin goals of running balanced budgets and increasing necessary capital expenditures. Moreover, compared with the rest of sub-Saharan Africa, total government revenue as a proportion of GDP continued to be relatively low. It was less than 16 percent in 1990 (including grants), compared with an average of 19 percent for sub-Saharan Africa as a whole. In 1993, revenue raising efforts aimed to secure income equivalent to 22.2 percent of GDP. By 1992 the government's financial position had weakened. From 1986 to 1991, government finances were in surplus. In 1992, however, tax receipts from all sources of revenue were below projected levels, and with national elections in view, the government relaxed its tight controls on spending. Despite inclusion of foreign funding as a source of revenue, the deficit for 1992 was estimated at 177 billion but fell to 119 billion in 1993. To rectify the situation, the government proposed to raise taxes on gasoline, kerosene, diesel fuel, and liquefied petroleum gas by as much as 60 percent.

http://countrystudies.us/ghana/
https://www.lonelyplanet.com/ghana


Country Studies main page | Ghana Country Studies main page