- Clearly, the impact of Covid-19 on the economy in 2020 was pronounced. There have been reported revenue losses for media houses, hotels and restaurants amongst others, while retail outlets have rationalized their staff levels, resulting in a 50% reduction in some cases.
Written By Yaw K. Dei - The 2021 Budget will ensure recovery and macroeconomic stability through well-thought out tax measures in a difficult time. In previous budgets, the NPP Government sought to ensure that economic growth and its benefits trickled down to all citizens; and that the benefits are tangibly felt by everyone. Nuisance taxes imposed by the previous Government were abolished and as a listening government, taxes that were earlier introduced such as the luxury vehicle tax and the adjusted Pay As You Earn (PAYE) tax rates that had noticeable impact on the middle class were removed when concerns were raised by the public.
These are a few examples of actions taken by a government which prides itself on prudent, sustainable and inclusive economic policy decisions and actions. However, we have been confronted by a pandemic (Covid-19) whose impact on the global and our domestic economy has been devastating. This unexpected turn of events required swift action to ameliorate the negative impact on livelihoods.
These actions came at a cost that we must begin to address and take the tough decisions that bring us back to the path of economic growth that is felt tangibly. Thus, the 2021 Budget must balance the need to support the economy through the difficult Covid-19 impact; and yet at the same time seek a burden-sharing paradigm through tax relief for low income earners and marginal tax increases for the middle and upper classes. Burden- sharing is important so that the Managers of the economy can balance recovery spending with macroeconomic stability.
Clearly, the impact of Covid-19 on the economy in 2020 was pronounced. There have been reported revenue losses for media houses, hotels and restaurants amongst others, while retail outlets have rationalized their staff levels, resulting in a 50% reduction in some cases. Indeed, the Covid-19 fallout on the private sector has been severe as most businesses continue to be cash- strapped and cannot operate at optimal levels or maintain their current payroll. For Government, the slowdown in economic activity has resulted in revenue shortfalls and a simultaneous increase in spending. It is expected that Governments fiscal deficit target will likely double in 2020 on account of Covid-19 pressures!
The Government response to Covid-19 has been swift and expensive. For example, the National Preparedness and Response Program cost the government about GH0572m, total spending under CAPBuss to support MSMEs was in excess of GH0 750m. GH0 20m was spent to supplement incomes of frontline healthcare workers, as well as, the launch of a GH02b Guarantee Scheme to support banks to lend to Corporates. These expenditures in addition to free water and electricity provision across the country, support for frontline health workers, among others, made the Government the most responsive and efficient within the region.
Across the globe, more advanced countries have also responded to the pandemic with similar measure, with the US, for example, passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which released about $2.08 trillion for intervention in its economy. In fact, the measures taken by the US, UK and the EU were far reaching; and combined with their monetary policy measures are some of the most large-scale liquidity events for these economies in decades.
Just like more advanced countries, Ghana must show its commitment to spend to support households and businesses during the pandemic - as it is doing effectively and evidence by a stronger GDP growth projection of about 5% for 2021, but at the same time ensure that its economic policy is prudent enough not to compromise its macroeconomic stability. The launch of the Ghana CARES program to invest in infrastructure, housing, regional hubs, as well as, the capitalization of the Development Bank of Ghana (DBG) for private sector led growth is in the right direction to ensure a strong post Covid-19 recovery for Ghana, potentially pushing GDP growth to about 8-10% on a sustainable basis. Yet there must be sacrifices - sacrifices that require reorientation and burden-sharing by the citizens if the stability of the economy is not to be derailed.
The more advanced countries are showing us the need for this burden-sharing. South Africa, for example, through increased spending and support for the private sector is expecting its GDP growth to rebound to 3.3% in 2021 from a contraction of 7.2% in 2020; but has increased its fuel levy by 27c per liter and also imposed an 8% increase in excise duties on alcohol and tobacco products in its recent national budget policy. The UK in its 2021 budget also signaled an increase in its corporate tax from 19% to 25% in 2023, a magnitude of increase said to be unprecedented since the company tax rate for the UK was increased in 1974.
Similar measures must be taken by Ghana as a necessary strategy to reduce government borrowing requirements, stabilize the budget and ensure that the macroeconomy remains stable. As the Government is about to read the 2021 budget, indications are that there may be tax increases to support Covid-19 related expenditure. If this is the case, it is expected that the public understands the need for Government to increase some consumption related taxes for this purpose. These tax measures must however be supported by relief or tax suspension for low-income earners and rebates for companies hard hit by the pandemic. This burden sharing - a well thought-out revenue measure to ensure adequate support and safety net for low-income earners whiles requesting for some sacrifices from the middle and the upper income brackets will be important for this budget.
Given the efforts of Government to provide relief for households and businesses during this challenging time imposed by the pandemic, the private sector, particularly must support the efforts of Government in trying to restore the economy and improve the livelihood of the people of Ghana.
As much as every Ghanaian is feeling the impact of this global pandemic which has shattered homes, destroyed businesses and shrunk many economies around the world, it will take a patriotic approach to subdue this impact. The experiences of other countries have taught us that to win the war against the pandemic, we need to adopt the power of collaboration as a people. The whole idea of this collaboration is to share the burden brought to us by this overwhelming and unprecedented pandemic.